UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 10-Q

x	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended ~~September 30~~March 31, ~~2012~~2013

¨	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to

Commission File Number: 0-24836

Parabel Inc.

(Exact name of registrant as specified in its charter)

Delaware		33-0301060
(State or other jurisdiction of incorporation)		(IRS Employer Identification No.)

1901 S. Harbor City Blvd., Suite 600 Melbourne, FL		32901
(Address of principal executive offices)		(Zip Code)

Registrant’s telephone number, including area code: 321-409-7500

Indicate by check mark whether the registrant (1) filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter period that the Registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days. YES x NO ¨

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes x No ¨

Indicate by checkmark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company (as defined in Exchange Act Rule 12b-2).

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). YES ¨ NO x

There were 106,920,730 shares of common stock with a par value of $0.001 per share outstanding at ~~November~~May 1215, ~~2012~~2013.

~~TABLE~~FORM ~~OF CONTENTS~~10-Q

PART I.	FINANCIAL INFORMATION	3
ITEM 1.	FINANCIAL STATEMENTS	3
ITEM 2.	MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS	21
ITEM 3.	QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK	26
ITEM 4.	CONTROLS AND PROCEDURES	27
PART II.	OTHER INFORMATION	27
ITEM 1.	LEGAL PROCEEDINGS	27
ITEM 1A.	RISK FACTORS	27
ITEM 2.	UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS	27
ITEM 3.	DEFAULTS UPON SENIOR SECURITIES	27
ITEM 4.	(REMOVED AND RESERVED)	27
ITEM 5.	OTHER INFORMATION	27
ITEM 6.	EXHIBITS	27

FOR THE QUARTERLY PERIOD ENDED

~~PART~~MARCH I.31, ~~FINANCIAL INFORMATION~~2013

PART I.		FINANCIAL INFORMATION		3

	ITEM 1.		FINANCIAL STATEMENTS	3
			CONSOLIDATED BALANCE SHEETS AS OF MARCH 31, 2013 AND DECEMBER 31, 2012	3
			CONSOLIDATED STATEMENTS OF OPERATIONS FOR THE THREE MONTHS ENDED MARCH 31, 2013 AND MARCH 31, 2012, AND FOR THE PERIOD FROM INCEPTION (SEPTEMBER 22, 2006) THROUGH MARCH 31, 2013	4
			CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ DEFICIT FOR THE PERIOD FROM INCEPTION (SEPTEMBER 22, 2006) TO MARCH 31, 2013	5
			CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE THREE MONTHS ENDED MARCH 31, 2013 AND MARCH 31, 2012, AND FOR THE PERIOD FROM INCEPTION (SEPTEMBER 22, 2006) THROUGH MARCH 31, 2013	7
			NOTES TO CONSOLIDATED FINANCIAL STATEMENTS MARCH 31, 2013 (UNAUDITED)	8
	ITEM 2.		MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS	28
	ITEM 3.		QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK	29
	ITEM 4.		CONTROLS AND PROCEDURES	29

PART II.		OTHER INFORMATION		29

	ITEM 1.		LEGAL PROCEEDINGS	29
	ITEM 1A.		RISK FACTORS	29
	ITEM 2.		UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS	29
	ITEM 3.		DEFAULTS UPON SENIOR SECURITIES	29
	ITEM 4.		MINE SAFETY DISCLOSURES	29
	ITEM 5.		OTHER INFORMATION	29
	ITEM 6.		EXHIBITS	29
			SIGNATURE	31

PART I. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

Parabel Inc.

(A Development Stage Company)

Consolidated Balance Sheets

	September 30, 2012 (Unaudited)			December 31, 2011
	March 31, 2013 (Unaudited)			December 31, 2012
ASSETS
Current assets:
Cash and cash equivalents	$	112,~~152~~558,~~399~~254		$	8363,~~842,269~~399
Restricted cash		75,~~070~~089			75,~~286~~089
Prepaid expenses		~~134~~75,~~669~~497			~~116~~81,~~672~~901
Other current assets		259,692			777,594
Total current assets		12,708,840			520,389
Total current assets		1,621,830			9,811,821
Property and equipment		2,645,281			2,645,281
Property and equipment		3,175,667			3,066,217
Accumulated depreciation		(2,135,183	)		(2,059,142	)
Accumulated depreciation		(2,339,692	)		(1,974,566	)
Net property and equipment		510,098			586,139
Net property and equipment		835,975			1,091,651
Deposits		251,723			251,723
Deposits		256,378			256,015
Deferred loan cost		482,527			—
Other non-current assets		220,000			-
Total assets	$	13,953,188		$	1,358,251
Total assets	$	2,934,183		$	11,159,487
LIABILITIES AND STOCKHOLDERS’ DEFICIT
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current liabilities:
Accounts payable	$	1862,~~477,673~~192		$	~~948~~1,~~375~~155,399
Accrued expenses		~~480~~1,~~798~~187,813			1845,~~195,374~~867
Current portion of accrued interest and expenses - related party		-			11,294,885
Total current liabilities		2,050,005			2,001,266
Deferred revenue		-			612,500
Deferred rent		34,000			34,000
Current portion of notes payable - related party		-			78,914,092
Accrued expenses – related party		21,029,699			19,070,289
Total current liabilities		1,958,471			92,965,226
Interest payable		206,666			—
Deferred rent		33,333			32,280
Notes payable – related party		86,925,841			86,499,863
Accrued interest and expenses - related party		17,089,790			-
Notes payable		15,000,000			—
Notes payable - related party		84,224,475			-
Total liabilities		125,246,211			107,605,418
Total liabilities		103,306,069			92,997,506
Stockholders’ deficit:
Commitments and Contingencies (Note 7)
Preferred stock - $.001 par value, 25,000,000 shares authorized; no shares issued or outstanding at March 31, 2013 and December 31, 2012		—			—
Stockholders' deficit:
Common stock - $.001 par value, 300,000,000 shares authorized; 106,920,730 shares issued and outstanding at March 31, 2013 and December 31, 2012		106,921			106,921
Preferred stock - $.001 par value, 25,000,000 shares authorized; no shares issued or outstanding at September 30, 2012 and December 31, 2011		-			-
Paid in capital		40,783,451			39,391,137
Common stock - $.001 par value, 300,000,000 shares authorized; 106,920,730 shares issued and outstanding at September 30, 2012 and December 31, 2011		106,921			106,921
Deficit accumulated during the development stage		(154,077,729	)		(148,302,262	)
Paid in capital		38,810,982			39,801,148
Parabel Inc. stockholders’ deficit		(113,187,357	)		(108,804,204	)
Deficit accumulated during the development stage		(142,692,254	)		(122,887,794	)
Non-controlling interest		1,894,334			2,557,037
Parabel Inc. stockholders' deficit		(103,774,351	)		(82,979,725	)
Total stockholders’ deficit		(111,293,023	)		(106,247,167	)
Non-controlling interest		3,402,465			1,141,706
Total liabilities and stockholders’ deficit	$	13,953,188		$	1,358,251
Total stockholders' deficit		(100,371,886	)		(81,838,019	)
Total liabilities and stockholders' deficit	$	2,934,183		$	11,159,487

See the accompanying notes to the consolidated financial statements.

Parabel Inc.

(A Development Stage Company)

Consolidated Statements of Operations

(Unaudited)

	Three Months Ended September 30,						Nine Months Ended September 30,						For the Period From September 22, 2006 (Inception) Through September 30,
							For the Period From September 22, 2006 (Inception) Through
	2012			2011			2012			2011			2012
	Three Months Ended March 31,						March 31,
Revenue	$	-		$	-		$	650,000		$	-		$	650,000
	2013			2012			2013
Costs and expenses:
Revenues:
Cost of sales		-			-			81,393			-			81,393
License fees	$	—		$	500,000		$	650,000
Selling, general and administrative		2,199,996			2,206,280			9,920,462			8,074,208			71,411,043
Total revenues		—			500,000			650,000
Research and development		2,337,218			2,183,312			6,136,976			8,462,806			64,804,450
Costs and expenses:
Interest expense - related party		2,197,075			1,767,864			6,397,116			4,646,195			22,513,210
Cost of sales		—			39,792			81,393
Depreciation		107,701			188,912			370,330			669,124			3,809,716
Selling, general and administrative		3,238,010			2,513,733			76,904,660
Total costs and expenses		6,841,990			6,346,368			22,906,277			21,852,333			162,619,812
Research and development		742,391			1,635,253			67,488,637
Net loss before non-controlling interest		(6,841,990	)		(6,346,368	)		(22,256,277	)		(21,852,333	)		(161,969,812	)
Interest expense - related party		2,235,388			2,074,115			27,004,485
Net loss attributable to non-controlling interest		737,412			805,989			2,451,817			2,797,625			19,277,558
Interest expense		224,139			—			224,139
Net loss attributable to Parabel Inc.	$	(6,104,578	)	$	(5,540,379	)	$	(19,804,460	)	$	(19,054,708	)	$	(142,692,254	)
Depreciation		76,041			139,053			3,960,493
Basic and diluted common shares outstanding		106,920,730			106,920,730			106,920,730			106,920,730
Total costs and expenses		6,515,969			6,401,946			175,663,807
Basic and diluted loss per share	$	(0.06	)	$	(0.05	)	$	(0.19	)	$	(0.18	)
Net loss		(6,515,969	)		(5,901,946	)		(175,013,807	)
Net loss attributable to non-controlling interest		740,502			743,646			20,936,078
Net loss attributable to Parabel Inc.	$	(5,775,467	)	$	(5,158,300	)	$	(154,077,729	)
Basic and diluted common shares outstanding		106,920,730			106,920,730
Basic and diluted loss per share	$	(0.05	)	$	(0.05	)

See the accompanying notes to the consolidated financial statements.

Parabel Inc.

(A Development Stage Company)

Consolidated Statements of Changes in Stockholders'’ Deficit

For the Period From Inception (September 22, 2006) to ~~September 30~~March 31, ~~2012~~2013

(Unaudited)

	Common Stock Shares			Amount			Paid in Capital			Non-Controlling Interest			Deficit Accumulated During the Development Stage			Total
Shares issued at inception for cash		100,000,000		$	100,000		$	388,532		$	-—		$	-—		$	488,532
Net loss		-—			-—			-—			-—			(1,410,724	)		(1,410,724	)
Balance - December 31, 2006		100,000,000		$	100,000		$	388,532		$	-—		$	(1,410,724	)	$	(922,192	)
Amortization of PA LLC interests to employees		-—			-—			276,986			-—			-—			276,986
Net loss		-—			-—			-—			-—			(8,346,378	)		(8,346,378	)
Balance - December 31, 2007		100,000,000		$	100,000		$	665,518		$	-—		$	(9,757,102	)	$	(8,991,584	)
Amortization of PA LLC interests to employees		-—			-—			2,240,041			200,000			-—			2,440,041
Shares issued for cash		3,174,603			3,175			9,996,825			-—			-—			10,000,000
Shares issued for unearned services		1,000,000			1,000			(1,000	)		-—			-—			-—
Amortization of unearned services		-—			-—			43,750			-—			-—			43,750
Issuance of option as additional consideration for debt		-—			-—			1,453,000			-—			-—			1,453,000
Reverse merger		99,586			99			-—			-—			-—			99
Net loss		-—			-—			-—			(162,400	)		(19,987,850	)		(20,150,250	)
Balance - December 31, 2008		104,274,189		$	104,274		$	14,398,134		$	37,600		$	(29,744,952	)	$	(15,204,944	)
Shares issued for services		160,524			160			537,652			-—			-—			537,812
Shares issued for cash		500,000			500			3,999,500			-—			-—			4,000,000
Shares issued with purchase price guaranty		937,500			938			(938	)		-—			-—			-—
Shares and warrants issued for other current assets		357,143			357			3,017,787			-—			-—			3,018,144
Amortization of PA LLC interests to employees		-—			-—			-—			1,987,552			-—			1,987,552
Amortization of options issued to employees		-—			-—			588,653			-—			-—			588,653
Amortization of unearned services		-—			-—			1,575,000			-—			-—			1,575,000
Net loss		-—			-—			-—			(6,554,358	)		(30,267,878	)		(36,822,236	)
Balance - December 31, 2009		106,229,356		$	106,229		$	24,115,788		$	(4,529,206	)	$	(60,012,830	)	$	(40,320,019	)
Return of common stock for other current asset		(106,126	)		(106	)		(341,620	)		-—			-—			(341,726	)
Shares issued for cash		810,000			810			6,479,190			-—			-—			6,480,000
Shares issued with put option or purchase price guaranty, net of purchase price guaranty expirations		-			-			7,400,000			-			-			7,400,000
Shares issued with put option or purchase price
Amortization of PA LLC interests to employees		-			-			(794	)		12,903,744			-			12,902,950
Asset guaranty, net of purchase price		—			—			7,400,000			—			—			7,400,000
Amortization of options issued to employees		-			-			922,549			-			-			922,549
Amortization of PA LLC interests to employees		—			—			(794	)		12,903,744			—			12,902,950
Amortization of unearned services		-			-			1,531,250			-			-			1,531,250
Amortization of options issued to employees		—			—			922,549			—			—			922,549
PA LLC units returned for surrendered technology license		-			-			(2,283,115	)		1,683,115			-			(600,000	)
Amortization of unearned services		—			—			1,531,250			—			—			1,531,250
Net loss		-			-			-			(6,469,356	)		(38,010,029	)		(44,479,385	)
PA LLC units returned for surrendered technology license		—			—			(2,283,115	)		1,683,115			—			(600,000	)
Net loss		—			—			—			(6,469,356	)		(38,010,029	)		(44,479,385	)
Balance - December 31, 2010		106,933,230		$	106,933		$	37,823,248		$	3,588,297		$	(98,022,859	)	$	(56,504,381	)
Put option exercised by former executive		(12,500	)		(12	)		12			-—			-—			-—
Amortization of PA LLC interests to employees		-—			-—			(845	)		1,193,036			-—			1,192,191
Amortization of options issued to employees		-—			-—			936,769			-—			-—			936,769
Amortization of stock appreciation rights issued to executive		-—			-—			1,041,964			-—			-—			1,041,964
Net loss		-—			-—			-—			(3,639,627	)		(24,864,935	)		(28,504,562	)
Balance - December 31, 2011		106,920,730		$	106,921		$	39,801,148		$	1,141,706		$	(122,887,794	)	$	(81,838,019	)
Amortization of PA LLC interests to employees		-—			-—			(278	)		1487,~~825~~415			-—			1487,~~547~~137
Amortization of options to acquire PA LLC interests		-—			-—			-—			2,498,260			-—			2,498,260
Amortization of options issued to employees		-—			-—			~~137~~237,~~826~~075			-—			-—			~~137~~237,~~826~~075
Amortization of stock appreciation rights issued to executive		-—			-—			1,~~442~~923,~~718~~624			-—			-—			1,~~442~~923,~~718~~624
PA LLC units returned for cash settlement		-—			-—			(1,117,432)	)		744,462			-—			(372,970)	)
Exercise of option to acquire PA LLC interests		-			-			(1,453,000	)		1,455,029			-			2,029
Exercise of options to acquire PA LLC interests		—			—			(1,453,000)			1,455,029			—			2,029
Net loss		-—			-—			-—			(23,~~451~~369,~~817~~835	)		(1925,~~804~~414,~~460~~468	)		(2228,~~256~~784,~~277~~303	)
Balance - September 30, 2012		106,920,730		$	106,921		$	38,810,982		$	3,402,465		$	(142,692,254	)	$	(100,371,886	)
Balance - December 31, 2012		106,920,730		$	106,921		$	39,391,137		$	2,557,037		$	(148,302,262	)	$	(106,247,167	)

See the accompanying notes to the consolidated financial statements.

Parabel Inc.

(A Development Stage Company)

Consolidated Statements of ~~Cash~~Changes ~~Flows~~in Stockholders’ Deficit

For the Period From Inception (September 22, 2006) to March 31, 2013

(Unaudited)

	Nine Months Ended September 30,						For the Period From September 22, 2006 (Inception) Through September 30,
Amortization of PA LLC interests to employees		—			—			—			77,799			—			77,799
	2012			2011			2012
Amortization of Parabel Ltd. options to executives		—			—			497,114			—			—			497,114
Cash flows from operating activities:
Amortization of options issued to employees		—			—			185,792			—			—			185,792
Net loss	$	(22,256,277	)	$	(21,852,333	)	$	(161,969,812	)
Amortization of stock appreciation rights issued to executive		—			—			709,768			—			—			709,768
Adjustments to reconcile net loss to net cash used in operating activities:
PA LLC units returned for cash settlement		—			—			(360)			—			—			(360)
Amortization of original issue discount		-			-			1,453,000
Net loss		—			—			—			(740,502	)		(5,775,467	)		(6,515,969	)
Amortization of Company options		137,826			698,801			2,585,797
Balance - March 31, 2013		106,920,730		$	106,921		$	40,783,451		$	1,894,334		$	(154,077,729	)	$	(111,293,023	)
Amortization of stock appreciation rights		1,442,718			561,057			2,484,682
Amoritization of unearned services		-			-			3,150,000
Amortization of PA LLC interests to employees		14,547			1,104,235			18,814,267
Amortization of options to acquire PA LLC interests		2,498,260			-			2,498,260
Expenses paid and interest added to notes payable - related party		810,383			764,881			12,186,224
Expenses paid by issuance of common stock		-			-			1,214,230
Gain on settlement of accrued liability		(433,295	)		-			(433,295	)
Depreciation		370,330			669,124			3,809,716
Impairment loss		31,801			409,674			620,574
Loss (Gain) on disposition of equipment		3,945			(7,834	)		321,318
Write-off of other non-current assets		780,873			830,375			2,067,637
Decrease (increase) in restricted cash		216			325,000			(75,070	)
(Increase) in prepaid expenses		(17,997	)		(13,309	)		(154,283	)
(Increase) in other current assets		(262,971	)		(67,682	)		(677,247	)
(Increase) in deposits		(363	)		(42,800	)		(236,764	)
(Increase) in other non-current assets		(220,000	)		-			(329,720	)
Increase (decrease) in accounts payable		529,298			(592,210	)		169,743
Increase in accrued expenses		5,513,624			3,665,947			15,690,101
(Decrease) increase in deferred revenue		(612,500	)		91,749			-
Increase in deferred rent		1,053			31,780			33,333
Net cash used in operating activities	$	(11,668,529	)	$	(13,423,545	)	$	(96,777,309	)
Cash flows from investing activities:
Proceeds from sale of asset		-			16,520			86,320
Acquisition of property and equipment		(150,400	)		(543,478	)		(5,673,903	)
Net cash used in investing activities	$	(150,400	)	$	(526,958	)	$	(5,587,583	)
Cash flows from financing activities:
Member contributions		-			-			488,532
Reverse merger		-			-			99
Exercise of put option		-			(100,000	)		(100,000	)
Exercise of option to acquire PA LLC interests		2,029			-			2,029
Common stock and warrants issued for cash		-			-			27,980,000
Borrowings under note payable - related party		4,500,000			19,625,000			74,119,601
PA LLC units returned for cash and surrendered technology license		-			-			(600,000	)
PA LLC units returned for cash settlement		(372,970	)		-			(372,970	)
Issuance of common stock and warrants for cash		-			-			2,000,000
Net cash provided by financing activities	$	4,129,059		$	19,525,000		$	103,517,291
Net (decrease) increase in cash		(7,689,870	)		5,574,497			1,152,399
Cash and cash equivalents - beginning of period		8,842,269			1,140,882			-
Cash and cash equivalents - end of period	$	1,152,399		$	6,715,379		$	1,152,399
Non-cash investing and financing activities:
Stock and warrants issued for other liabilities, net	$	-		$	(100,000	)	$	-
Common stock issued for unearned services	$	-		$	-		$	3,150,000
Issuance of shares for other current asset	$	-		$	-		$	1,200,000
Return of common stock for other current asset	$	-		$	-		$	(342,000	)
Liability repaid with restricted cash	$	-		$	2,000,000		$	-

See the accompanying notes to the consolidated financial statements.

Parabel Inc.

(A Development Stage Company)

Consolidated Statements of Cash Flows

(Unaudited)

							For the Period From September 22, 2006 (Inception) Through
	Three Months Ended March 31,						March 31,
	2013			2012			2013
Cash flows from operating activities:
Net loss	$	(6,515,969	)	$	(5,901,946	)	$	(175,013,807	)
Adjustments to reconcile net loss to net cash used in operating activities:
Amortization of original issue discount		—			—			1,453,000
Amortization of Company options		682,906			28,170			3,367,953
Amortization of stock appreciation rights		709,768			480,906			3,675,355
Amortization of unearned services		—			—			3,150,000
Amortization of PA LLC interests to employees		—			(27,946	)		18,886,857
Amortization of options to acquire PA LLC interests		77,799			—			2,576,059
Expenses paid and interest added to notes payable - related party		275,977			264,585			12,737,589
Expenses paid by issuance of common stock		—			—			1,214,230
Gain on settlement of accrued liability		—						(433,295	)
Depreciation		76,041			139,053			3,960,493
Impairment loss		—			—			651,348
Loss on disposition of equipment		—			—			277,708
Write-off of other non-current assets		—			—			2,067,637
Change in operating assets and liabilities:
Decrease (increase) in restricted cash		—			253			(75,089	)
Decrease (increase) in prepaid expenses		10,139			19,607			(91,376	)
(Increase) in other current assets		—			(169,488	)		(417,555	)
(Increase) in deposits		(3,734	)		(362	)		(235,843	)
(Increase) in other non-current assets		—			—			(109,720	)
(Decrease) increase in accounts payable		(293,207	)		21,483			1,200,129
Increase in accrued expenses		2,301,356			1,741,976			18,691,158
Increase in interest payable		206,666			—			206,666
(Decrease) in deferred revenue		—			(500,000	)		—
Increase in deferred rent		—			53			34,000

Net cash used in operating activities	$	(2,472,258	)	$	(3,903,656	)	$	(102,226,503	)

Cash flows from investing activities:
Proceeds from sale of asset		—			—			278,071
Acquisition of property and equipment		—			(40,377	)		(5,677,718	)

Net cash used in investing activities	$	—		$	(40,377	)	$	(5,399,647	)

Cash flows from financing activities:
Member contributions		—			—			488,532
Reverse merger		—			—			99
Exercise of put option		—			—			(100,000	)
Exercise of put option to acquire PA LLC interests		—			—			2,029
Common stock and warrants issued for cash		—			—			27,980,000
Borrowings under note payable - related party		150,000			1,500,000			76,269,601
Borrowings under note payable		15,000,000			—			15,000,000
PA LLC units returned for cash and surrendered technology license		—			—			(600,000	)
PA LLC units returned for cash settlement		(360	)		—			(373,330	)
Deferred loan cost		(482,527	)		—			(482,527	)
Issuance of common stock and warrants for cash		—			—			2,000,000

Net cash provided by financing activities	$	14,667,113		$	1,500,000		$	120,184,404

Net increase (decrease) in cash		12,194,855			(2,444,033	)		12,558,254
Cash and cash equivalents - beginning of period		363,399			8,842,269			—

Cash and cash equivalents - end of period	$	12,558,254		$	6,398,236		$	12,558,254

Non-cash investing and financing activities:
Liability incurred for other non-current asset	$	—		$	(47,598	)	$	—
Common stock issued for unearned services	$	—		$	—		$	3,150,000
Issuance of shares for other current asset	$	—		$	—		$	1,200,000
Return of common stock for other current asset	$	—		$	—		$	(341,726	)
Liability repaid with restricted cash	$	—		$	—		$	4,000,000

See the accompanying notes to the consolidated financial statements.

Parabel Inc.

(A Development Stage Company)

Notes to Consolidated Financial Statements

~~September 30~~March 31, ~~2012~~2013

(Unaudited)

Note 1 Organization

Parabel Inc. (the “Company”), began its operations through its controlled subsidiary, PA LLC (formerly known as PetroAlgae LLC), on December 19, 2008, as a result of the reverse acquisition described below. PA LLC was formed by XL TechGroup, LLC (“XL Tech”, a related party and ~~the~~its sponsor and parent ~~of PA LLC~~ until December 19, 2008) on September 22, 2006 as a Delaware limited liability company to develop technologies to commercially grow, harvest and process locally-available aquatic plants (“micro-crops”). PA LLC is a technology development and licensing company that provides ~~renewable~~micro-crop technology ~~and solutions~~ to address the global demand for new sources of feed, ~~food~~ and ~~fuel~~food. The Company has developed proprietary technology, which it believes will enable customer licensees to grow, harvest and process micro-crops to produce Lemna Protein Concentrate (“LPC”), and Lemna Meal (“LM”) ~~and Biocrude~~. In the near-term, the Company is positioning LPC and LM in animal feed markets, as fish meal and alfalfa meal alternatives, respectively. ~~With~~In ~~further technology and product development~~addition, the Company expects LPC to be applied in human food markets ~~and, with the development of third-party conversion technologies, the Company expects Biocrude to be used as a feedstock for renewable fuels~~.

Reverse Acquisition

In August 2008, XL Tech exchanged certain of its assets, including the equity it held in PA LLC, for the outstanding debt of XL Tech that was held by our principal stockholder. Subsequent to that exchange, our principal stockholder transferred the equity it received and certain related debt to PetroTech Holdings Corp. (“PetroTech”), a holding company controlled by our principal stockholder. In December 2008, PetroTech acquired a shell company that traded on the OTC Bulletin Board and assigned its interest in PA LLC to this shell company, which it then renamed PetroAlgae Inc. As a result of the acquisition, PetroTech became the owner of 100,000,000 shares of common stock of PetroAlgae Inc. which, at the time, represented 99.9% of the total issued and outstanding common stock of PetroAlgae Inc. As the former members of PA LLC controlled PetroAlgae Inc. after the transaction, the merger was accounted for as a reverse acquisition under which, for accounting purposes, PA LLC was deemed to be the acquirer and PetroAlgae Inc., the legal acquirer, was deemed to be the acquired entity. No goodwill was recognized as PetroAlgae Inc. was a “shell” company. The former shareholders of PetroAlgae Inc. retained an aggregate of 99,586 shares of common stock, which were recorded at par value of $99. PetroAlgae Inc. changed its name to Parabel Inc. on February 7, 2012.

Parabel Ltd.

On December 5, 2012, PA LLC formed a wholly-owned subsidiary, Parabel Ltd., organized under the laws of the Cayman Islands, to which it transferred on January 29, 2013 substantially all of the assets of PA LLC. The Company’s principal stockholder released its security over the assets transferred to Parabel Ltd.

Parabel USA Inc.

On March 25, 2013, Parabel Ltd., formed a wholly-owned subsidiary, Parabel USA Inc. organized under the laws of the state of Delaware.

Basis of Presentation

The accompanying consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) for interim financial information and Rule 8-03 of Regulation S-X. They do not include all of the information and footnotes required by U.S. GAAP for complete financial statements. The unaudited consolidated financial statements reflect all normal recurring adjustments, which, in the opinion of management are necessary for the fair statement of the Company’s results for the interim period presented. The consolidated results of operations for the periods presented are not necessarily indicative of the results to be expected for the year ending December 31, ~~2012~~2013 or any future period. For further information, refer to the consolidated financial statements of the Company included in the Company’s Annual Report on Form 10-K, which was filed with the Securities and Exchange Commission (the “SEC”) on ~~March~~April 3001, ~~2012~~2013.

Principles of Consolidation

The accompanying consolidated financial statements include the accounts of the Company and its consolidated ~~subsidiary~~subsidiaries, PA LLC and Parabel Ltd. Non-controlling interests are accounted for based upon the value or cost attributed to their investment adjusted for the share of income or loss that relates to their percentage ownership of the entire Company. All intercompany transactions and balances have been eliminated in consolidation.

Use of Estimates

The accompanying consolidated financial statements are prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) which ~~requires~~require management to make estimates and assumptions. These estimates and assumptions affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenue and expense. Actual results may differ from these estimates.

Revenue Recognition

The Company records revenue when persuasive evidence of an arrangement exists, services have been rendered or product delivery has occurred, the sales price to the customer is fixed or determinable, and collectability is reasonably assured. To the extent cash is received in advance of the Company’s performance under a license agreement or such receipts are refundable at the customer’s option, these amounts will be reported as deferred revenue.

7During the fourth quarter of 2011, the Company completed the construction of its pilot-scale bioreactor for its customer licensee in South America, Asesorias e Inversiones Quilicura S.A. (“AIQ”). On March 31, 2012, the testing period during which the Company monitored and evaluated growth within the bioreactor was concluded and AIQ concurred in writing with the Company’s report declaring the success of the preliminary phase. As a result, the Company recognized $0.5 million of previously deferred revenue in its consolidated statement of operations during the three months ended March 31, 2012.

In May 2011, the Company entered into a PA Select license agreement with the Republic of Suriname, initially providing for pilot-scale testing in exchange for a limited license fee of $150,000. The Company did not believe at the time of entering into the agreement that the agreement was material. During the first quarter of 2012, the Company concluded its pilot-scale testing in Suriname. During the second quarter of 2012, the parties to the agreement mutually agreed not to proceed to commercial-scale operations in recognition of the Company’s evolving business model and strategic priorities. As a result, the Company recognized $0.2 million of previously deferred revenue in its consolidated statement of operations during the three months ended June 30, 2012.

Restricted Cash

As of ~~September 30~~March 31, ~~2012~~2013 and December 31, ~~2011~~2012, restricted cash consisted of $0.1 million that was held in escrow per a credit card arrangement with the Company’s financial institution.

Fair Value of Financial Instruments

Fair value estimates discussed herein are based upon certain market assumptions and pertinent information available to management as of ~~September 30~~March 31, ~~2012~~2013. The respective carrying values of certain financial instruments approximate their fair values. These financial instruments include cash and cash equivalents, restricted cash, accounts payable, and accrued expenses. Carrying values are assumed to approximate fair values for these financial instruments because they are short-term in nature and their carrying amounts approximate the amounts expected to be received or paid.

The carrying value of the Company’s fixed-rate notes payable-related party approximate their fair value based on the current market conditions at the time of issuance for similar debt instruments.

Property and Equipment

Property and equipment is recorded at cost. Expenditures for major improvements and additions are added to property and equipment, while replacements, maintenance and repairs which do not extend the useful lives are expensed. Leasehold improvements are amortized over the shorter of the asset’s useful life or the remaining lease term.

Long-Lived Assets

The carrying value of long-lived assets is reviewed on a regular basis for the existence of facts and circumstances that suggest permanent impairment. Specifically, senior management of the Company considers in each reporting period the effectiveness of the Company’s significant assets to determine if impairment indicators, such as physical deterioration, process change or technological change, have resulted in underperformance, obsolescence or ~~the~~a need to replace such assets. ~~When~~The ~~the~~ Company ~~identifies~~groups ~~an impairment indicator, it measures the amount of the impairment based on the amount that the carrying value of the impaired asset exceeds~~ its ~~best~~assets ~~internal~~into ~~estimate~~three ofprimary ~~the~~categories ~~value~~for ofthis ~~the~~purpose. ~~asset~~Due ~~while~~to ~~it remains in use, plus any proceeds expected from~~ the ~~eventual~~nature ~~disposal~~ of the ~~impaired asset. Since the~~ Company’s ~~uses~~business, ~~most of its property and equipment to demonstrate its technology to prospective customers and not to generate revenues or~~ cash flows, aare ~~cash~~not ~~flow~~derived ~~analysis~~from ofspecific ~~the~~asset ~~assets~~groups; ~~is not practicable. Instead~~therefore, athis ~~depreciated~~grouping ~~replacement cost estimate~~ is ~~used~~merely ~~for~~to ~~assets~~aid ~~still~~the inCompany’s ~~service and equipment secondary market quotes are obtained for assets planned for disposal.~~analysis:

~~During~~• ~~the~~Office ~~third quarter of 2012~~equipment, ~~the~~including ~~Company’s~~leasehold board of directors approved a plan to wind-down the research and development activities that were being performed at its Fellsmere, FL facility so that the Company could instead focus on commercialization and deployment efforts at customer sites in other parts of the world. It is anticipated that the Fellsmere, FL facility will have no active operations by the end of November, 2012. The Company plans to retain the site and would anticipate re-activating it if there was a future reason to do so. In connection with this decision, management reviewed long-lived assets for recoverability and recorded an impairment charge of approximately $32,000 during the three months ended September 30, 2012. The impairment charge reduced property and equipment and increased research and development expense.improvements

~~During~~• ~~the~~Demonstration ~~second~~system and ~~third~~engineering quarters of 2011, the Company identified certain changes in its process development plans that eliminated or changed the need or expected use of certain assets. As a result, impairment charges of $0.1 million for the last three months and $0.4 million for the nine months ended September 30, 2011 were recorded to reduce these assets to their estimated realizable values. These charges reduced property and equipment ~~and increased research and development expense during the nine months ended September 30, 2011.~~

•

Computer software and hardware – applications and networking

The Company does not consider its net loss or cash outflow from operations to be an indicator of asset impairment as such financial results are typical for technology companies that are in the development stage. Rather, management evaluates the state of the technology, its process toward technical and business milestones, and relevant external market factors to ascertain whether a potential impairment has occurred. During 2012, the Company identified certain changes in its process development plans that eliminated or changed the need or expected use of certain assets. As a result, during the year ended December 31, 2012 impairment charges of $0.1 million were recorded as a reduction of property and equipment and an addition to research and development expense in order to reduce these assets to their estimated realizable value.

When the Company identifies an impairment indicator, it measures the amount of the impairment based on the amount that the carrying value of the impaired asset exceeds its best internal estimate of the value of the asset while it remains in use, plus any proceeds expected from the eventual disposal of the impaired asset. Since the Company uses most of its property and equipment to demonstrate its technology to prospective customers and continue technology and product enhancement efforts and not to generate revenues or cash flows, a cash flow analysis of the categories above or the assets as a whole is not practicable. Instead, a depreciated replacement cost estimate is used for assets still in service and equipment secondary market quotes are obtained for assets planned for disposal. Depreciated replacement cost is determined by contacting vendors of the same or similar equipment or other assets to obtain an estimate of the market price of such assets, and then reducing this amount by a formula derived from the age of the equipment and the typical useful life of that equipment. For assets planned to be disposed, descriptions of the equipment are circulated to a number of purchasers of used machinery and equipment to solicit bids for such assets. The Company’s best estimate of selling price based upon these purchasers’ responses is used to estimate the value of such assets, net of any costs to remove, recondition and/or ship the equipment to the buyer.

No impairment indicators were noted during the three months ended March 31, 2013 or 2012 and the Company’s process of monitoring these assets was unchanged during this period.

Research and Development

Research and development costs incurred in the discovery of new knowledge and the resulting translation of this new knowledge into plans and designs for new products, ~~including~~prior ~~enhancements~~ to the ~~products~~attainment ~~that~~of itthe ~~has~~related ~~demonstrated~~products’ totechnological ~~date~~feasibility, are recorded as expenses in the period incurred.

Loss Per Share

Basic ~~earnings (~~loss) per share is calculated by dividing net ~~income (~~loss) available to common stockholders by the weighted average number of common shares outstanding for the period. Diluted ~~earnings (~~loss) per share is calculated by dividing net ~~income (~~loss) available to common stockholders by the weighted average number of common shares and dilutive common stock equivalents outstanding. During periods in which the Company incurs losses, common stock equivalents are not considered as their effect would be anti-dilutive.

The effect of 2,592,143 and 2,592,143 weighted average warrants and 868,198 and 1,030,053 weighted average options were not included for the three and nine months ended September 30, 2012, respectively, as they would have had an antidilutive effect. The effect of 2,592,143 and 2,592,143 weighted average warrants and 1,743,880 and 1,597,878 weighted average options were not included for the three and nine months ended September 30, 2011, respectively, as they would have had an antidilutive effect.10

The effect of 2,592,143 and 2,592,143 weighted average warrants and 766,236 and 1,242,168 weighted average options were not included for the three months ended March 31, 2013 and 2012, respectively, as they would have had an anti-dilutive effect.

Recently Issued Accounting Pronouncements

Adoption of New Accounting Standards

Fair Value

In May 2011, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2011-04, Fair Value Measurements and Disclosures (Topic 820): Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and International Financial Reporting Standards (“ASU 2011-04”) to provide a consistent definition of fair value and ensure that the fair value measurement and disclosure requirements are similar between U.S. GAAP and International Financial Reporting Standards. ASU 2011-04 changes certain fair value measurement principles and enhances the disclosure requirements, mainly for level 3 fair value measurements. ASU 2011-04 is effective for the Company’s fiscal year beginning January 1, 2012. The adoption of ASU 2011-04 did not have an impact on the consolidated financial statements.

Comprehensive Income

In ~~June~~February ~~2011~~2013, the FASB issued ASU ~~2011~~2013-0502, ~~Comprehensive~~“Reporting ~~Income~~of ~~(Topic~~Amounts ~~220):~~Reclassified ~~Presentation~~Out of Accumulated Other Comprehensive Income,” ~~(“ASU~~which ~~2011-05”)~~requires disclosure about amounts reclassified out of accumulated other comprehensive income by component. ~~ASU~~In ~~2011-05~~addition, ~~will~~an ~~require~~entity ~~companies~~is required to present, either on the ~~components~~face of ~~net~~the ~~income~~statement ~~and~~of operations or in the notes, significant amounts reclassified out of accumulated other comprehensive income ~~either~~by asthe ~~one~~respective ~~continuous~~line ~~statement~~items orof asnet ~~two~~income, ~~consecutive~~but ~~statements.~~only Itif ~~eliminates~~ the ~~option~~amount toreclassified ~~present~~is ~~components~~required ofto ~~other~~be ~~comprehensive~~reclassified ~~income~~to asnet ~~part~~income ofin ~~the~~its ~~changes~~entirety in ~~stockholders’~~the ~~equity.~~same ~~The~~reporting ~~standard~~period. ~~does~~For ~~not~~amounts ~~change~~that ~~the~~are ~~items~~not ~~which~~required ~~must~~to be ~~reported~~reclassified in ~~other~~their ~~comprehensive~~entirety to net income, ~~how~~an ~~such~~entity ~~items~~is ~~are~~required ~~measured~~to orcross-reference ~~when~~to ~~they~~other ~~must~~disclosures bethat ~~reclassified~~provide toadditional ~~net~~detail ~~income~~about those amounts. ASU ~~2011~~2013-0502 is to be applied prospectively and is effective for ~~interim~~fiscal years and ~~annual~~interim periods beginning after December 15, ~~2011, with early adoption permitted~~2012. The adoption of ~~ASU~~this ~~2011-05~~guidance did not have a material impact on the Company’s consolidated results of operations, financial ~~statements~~position or ~~its~~cash ~~financial condition~~flows.

In December 2011, the FASB issued ASU 2011-12, Deferral of the Effective Date for Amendments to the Presentation of Reclassification of Items Out of Accumulated Other Comprehensive Income in ASU 2011-05 (“ASU 2011-12”), to indefinitely defer the effective date of the requirement to present reclassification adjustments from other comprehensive income to net income under ASU 2011-05. The adoption of ASU 2011-12 did not impact the Company’s consolidated financial statements or its financial condition.

Note 2 Going Concern

As of ~~September 30~~March 31, ~~2012~~2013, the Company ~~was~~is in the development stage as it continues to develop its products and has not yet recognized any significant revenues. The Company intends to transition from the development stage to ~~operational~~the ~~status~~commercialization stage depending upon the timing and its success in achieving its business development milestones. The Company’s consolidated financial statements are presented on a going concern basis, which contemplates the realization of assets and satisfaction of liabilities in the normal course of business.

The Company has never been profitable and has incurred significant losses and cash flow deficits. For the ~~nine~~three months ended ~~September 30~~March 31, ~~2012~~2013 and ~~2011~~2012, and the period from September 22, 2006 (inception) to ~~September 30~~March 31, ~~2012~~2013, the Company reported net losses of $226.35 million, $215.9 million, and $~~162~~175.0 million, respectively, and negative cash flows from operating activities of $112.75 million, $133.49 million, and $96102.82 million, respectively. As of ~~September 30~~March 31, ~~2012~~2013, the Company had an aggregate accumulated deficit of $~~142~~154.71 million. The Company anticipates that it will continue to report losses and negative cash flows during ~~the remainder of 2012~~2013. As a result of these net losses, cash flow deficits, and ~~other~~substantial ~~factors~~debt that is due on June 30, 2017, there is a substantial doubt about the Company’s ability to continue as a going concern.

The accompanying consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty. The Company’s ability to continue as a going concern is dependent upon generating sufficient cash flows from operations and obtaining additional capital and financing. The principal amount of related party debt obligations as of March 31, 2013 was $86.9 million. The principal balance of notes payable – related party and the $19.9 million of interest payable thereon is due June 30, 2017. The principal amount of unrelated party debt obligations as of March 31, 2013 was $15.0 million. The principal balance of notes payable – unrelated party and the $0.2 million of interest payable thereon is due on January 29, 2018.

The accompanying consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty. The Company’s ability to continue as a going concern is dependent upon generating sufficient cash flows from operations and obtaining additional capital and financing. The Company has been wholly dependent on funding from its principal stockholder. The Company does not currently expect to receive a significant amount of additional funding from its principal stockholder. The Company had unrestricted cash and cash equivalents of $1.2 million as of September 30, 2012. If the Company is unable to raise additional funding or generate sufficient cash flows from operations, the Company will be unable to continue in business beyond 2012.

Note 3 Other Current Assets

Other current assets consist of the following components:

	September 30, 2012		December 31, 2011
Materials and supplies inventory	$	259,692	$	164,020
Capitalized offering costs		-		613,574
Total Other Current Assets	$	259,692	$	777,594

Materials and supplies inventory consists of various components purchased by the Company to be used in the construction of pilot-scale bioreactors for prospective customer licensees. Materials and supplies inventory will be reclassified to cost of sales as bioreactor construction and related testing is completed.

Capitalized offering costs consists of legal and accounting costs associated with the Company’s filing during December 2011 of an amendment to its registration statement on Form S-1 with the SEC. These costs were capitalized with the intent of reclassifying them as a reduction of the resulting proceeds when the securities offering was successfully completed. As of June 30, 2012, over 90 days had passed without substantive progress on the planned offering. As a result, based upon the application of SEC Staff Accounting Bulletin 99-1, topic 5A, the remaining offering costs of $0.8 million were expensed during the period and classified as selling, general and administrative costs during the second quarter of 2012. On September 28, 2012, the Company filed a request with the SEC to withdrawal its registration statement on Form S-1 due to unfavorable market conditions.

Note 4 Other Non-Current Assets

Other non-current assets consists of legal and filing fees paid during the third quarter of 2012, which were directly associated with patent applications to be submitted in several different countries. Once the applications are filed, the fees will be amortized in accordance with Accounting Standards Codification (“ASC”) 350 - Intangibles - Goodwill and Other.

Note 5 Accrued Expenses

Accrued expenses are comprised of the following components:

	September 30, 2012		December 31, 2011
Accrued payroll and bonus	$	160,026	$	761,557
Accrued vacation compensation		192,084		231,094
Accrued legal, accounting and engineering fees		115,986		129,382
Other accruals		12,702		73,341
Total Accrued Expenses	$	480,798	$	1,195,374

As discussed in further detail in Note 8, the Company entered into an agreement on June 8, 2012 with certain of its former employees and senior officers that provided for the release of claims for deferred compensation related to their employment with PA LLC. As a result of this settlement, $0.5 million was reversed from accrued payroll costs during the second quarter of 2012.

Note 6 Deferred Revenue

During the fourth quarter of 2011, the Company completed the construction of its pilot-scale bioreactor for its customer licensee in South America, Asesorias e Inversiones Quilicura S.A. (“AIQ”). On March 31, 2012, the testing period during which the Company monitored and evaluated growth within the bioreactor was concluded and AIQ concurred with the Company’s report declaring the success of the preliminary phase. As a result, the Company recognized $0.5 million of previously deferred revenue in its consolidated statement of operations during the three months ended March 31, 2012.

No deferred revenue was recognized during the three months ended September 30, 2012.

~~Note~~The 7Company ~~Notes~~had ~~Payable~~cash -and ~~Related~~cash ~~Party~~equivalents (on a consolidated basis) of $12.6 million as of March 31, 2013 and believes it has sufficient working capital to continue its operations through the end of 2013.

~~During~~Note ~~the~~3 ~~nine~~Accrued months ended September 30, 2012, PetroTech Holdings Corp. (“PetroTech”), a holding company controlled by the Company’s principal stockholder, funded a total of $4.5 million to PA LLC pursuant to the terms of separate senior secured term notes, all of which are included in the $53.1 million notes payable in the following table. Notes payable - related party consist of the following as of:Expenses

	September 30, 2012		December 31, 2011
Note Payable to Valens U.S. SPV I, LLC	$	417,512	$	417,512
- Interest accrues monthly at an annual rate of 12%
- Note is due on June 30, 2017
Notes Payable to PetroTech		53,147,089		48,647,089
- Interest accrues monthly at an annual rate of 12%
- Note is due on June 30, 2017
Convertible Note Payable to PetroTech		10,000,000		10,000,000
- Interest accrues monthly at an annual rate of 12%
- Note is due on June 30, 2017 unless converted to common shares as described below
Up to $25,000,000 Note Payable to PetroTech		20,659,874		19,849,491
- Interest payable monthly and is drawn into note on a monthly basis at Prime + 2% (5.25% at September 30, 2012 and December 31, 2011)
- Note is due on June 30, 2017
- Permits additional draws to fund interest. Maximum balance of this note is limited to $25,000,000
Total	$	84,224,475	$	78,914,092

Accrued expenses are comprised of the following components:

On June 25, 2012, PetroTech and Valens U.S. SPV I, LLC agreed to extend the maturity of the notes payable – related party from June 30, 2012 to June 30, 2017. The agreements provide that in the event the Company or PA LLC hold, individually or together, cash or cash equivalents in excess of $50,000,000 in the aggregate, then any such amounts held in excess of $50,000,000 shall be applied to pre-pay the outstanding notes to the extent of such excess. As a result of the maturity date extension, the notes payable – related party has been classified as noncurrent liabilities on the accompanying consolidated balance sheet as of September 30, 2012.

	March 31, 2013		December 31, 2012
Accrued payroll and bonus	$	277,201	$	247,460
Accrued vacation compensation		99,029		121,741
Accrued legal, accounting and engineering fees		253,928		170,814
Other accruals		557,655		305,852
Total Accrued Expenses	$	1,187,813	$	845,867

~~The~~Note 4 ~~notes~~Notes payable - related party are secured by all of the Company’s assets. The convertible note payable to PetroTech allows the holder (at the holder’s option) to convert all or any portion of the issued and outstanding principal amount and/or accrued interest then due ($14.1 million as of September 30, 2012) into shares of the Company’s common stock at a fixed conversion price of $5.43 per share.Payable

~~Each~~During ~~note payable and~~ the ~~related~~three ~~master~~months ~~security~~ended ~~agreement~~March 31, ~~and~~2013, ~~equity~~PetroTech ~~pledge~~Holdings ~~and~~Corp. ~~corporate~~(“PetroTech”), ~~guaranty~~a ~~agreement~~holding ~~contain~~company ~~provisions~~controlled ~~that~~by ~~specify~~the ~~events~~Company’s ofprincipal ~~default~~stockholder, ~~which~~funded ~~could~~a ~~lead~~total ~~to acceleration~~ of ~~the maturity of the debt~~$0.2 ~~These~~million ~~provisions~~to ~~prohibit~~PA ~~the~~LLC ~~encumbrance~~pursuant orto ~~sale and require~~ the ~~maintenance~~terms ~~and insurance~~ of ~~the~~separate ~~Company’s~~senior ~~assets.~~secured ~~The~~term ~~loan agreements do not contain any required financial ratios or similar debt covenants. Generally~~notes, anall ~~event~~ of ~~default~~which ~~would~~are ~~arise~~included ifin the ~~Company~~$55.3 ~~became~~million ~~insolvent,~~notes ~~filed~~payable ~~for bankruptcy, allowed a change~~ in ~~control or had unresolved judgments against its assets. Through~~ the ~~date~~following ~~of this quarterly report, none of these events have occurred~~table.

AsOn ofJanuary ~~September 30~~29, ~~2012 and December 31~~2013, ~~2011,~~Dhabi ~~interest~~Cayman inOne ~~the amount of $16~~Ltd.~~0 million and $10.4 million~~, ~~respectively,~~an ~~was~~unaffiliated ~~accrued~~investor ~~related~~based ~~to the notes payable - related party and is recorded~~ in ~~accrued interest and expenses - related party on~~ the ~~accompanying~~United ~~consolidated~~Arab ~~balance~~Emirates ~~sheets. During the nine months ended September 30~~(“Dhabi”), ~~2012~~funded ~~and~~a ~~2011,~~total ~~additional accrued interest~~ of $015.~~8 million and $~~0.8 million, ~~respectively,~~to ~~was~~Parabel ~~added~~Ltd. toin the ~~principal~~form ~~balance~~ of ~~the~~a ~~floating-rate~~senior ~~note~~secured ~~and~~convertible ~~is recorded in notes payable - related party on the accompanying consolidated balance sheets~~note.

During the three months ended September 30, 2012 and 2011, interest charged to operations on these notes was $2.2 million and $1.8 million, respectively. During the nine months ended September 30, 2012 and 2011, and the period from September 22, 2006 (inception) to September 30, 2012, interest charged to operations on these notes was $6.4 million, $4.6 million, and $22.5 million, respectively. No interest was capitalized during any of these periods.

~~Note~~Notes 8payable ~~Stockholders’~~consist ~~Deficit~~of the following:

The Company’s equity consists of 300,000,000 shares of $.001 par value common stock, of which 106,920,730 and 106,920,730 shares had been issued and were outstanding as of September 30, 2012 and December 31, 2011, respectively. In addition, the Company may issue up to 25,000,000 shares of preferred stock. No preferred stock is outstanding.

	March 31, 2013		December 31, 2012
Note Payable to Valens U.S. SPV I, LLC	$	417,512	$	417,512
- Interest accrues monthly at an annual rate of 12%
- Note is due on June 30, 2017

Notes Payable to PetroTech		55,297,089		55,147,089
- Interest accrues monthly at an annual rate of 12%
- Notes are due on June 30, 2017

Convertible Note Payable to PetroTech		10,000,000		10,000,000
- Interest accrues monthly at an annual rate of 12%
- Note is due on June 30, 2017 unless converted to common shares as described below

Up to $25,000,000 Note Payable to PetroTech		21,211,240		20,935,262
- Interest payable monthly and is drawn into note on a monthly basis at Prime + 2% (5.25% at March 31, 2013 and December 31, 2012)

-Note is due on June 30, 2017
- Permits additional draws to fund interest. Maximum balance of this note is limited to $25,000,000
Total Notes Payable – Related Party	$	86,925,841	$	86,499,863

	March 31, 2013		December 31, 2012
Senior Convertible Note Payable to Dhabi Cayman One Ltd.		15,000,000		—
- Interest accrues monthly at an annual rate of 8% and is compounded quarterly		206,666		—
- Note is due on January 29, 2018
Total Notes Payable – Unrelated Party	$	15,206,666	$	—

The notes payable - related party are secured by all of the assets of Parabel Inc. and PA LLC. The convertible note payable to PetroTech allows the holder (at the holder’s option) to convert all or any portion of the issued and outstanding principal amount and/or accrued interest then due into shares of Parabel Inc.’s common stock at a fixed conversion price of $5.43 per share.

Each note payable - related party and the related master security agreement and equity pledge and corporate guaranty agreement contain provisions that specify events of default which could lead to acceleration of the maturity of the debt. These provisions prohibit the encumbrance or sale and require the maintenance and insurance of the secured assets. The loan agreements do not contain any required financial ratios or similar debt covenants. Generally, an event of default would arise if PA LLC became insolvent, filed for bankruptcy, allowed a change in control or had unresolved judgments against its assets. Through the date of this quarterly report, none of these events have occurred.

As of March 31, 2013 and December 31, 2012, interest in the amount of $19.9 million and $18.0 million, respectively, was accrued related to the notes payable - related party and is recorded in accrued expenses - related party on the accompanying consolidated balance sheets. During the three months ended March 31, 2013 and 2012, additional accrued interest of $0.3 million was added to the principal balance of the floating-rate note and is recorded in notes payable - related party on the accompanying consolidated balance sheets.

During the three months ended March 31, 2013 and 2012, and the period from September 22, 2006 (inception) to March 31, 2013, interest charged to operations on these related party notes was $2.2 million, $2.1 million, and $27.0 million, respectively. No interest was capitalized during any of these periods.

The notes payable –unrelated party is secured by a first priority security interest in all of the assets of Parabel Ltd. Parabel Ltd. is a wholly-owned subsidiary of PA LLC and an indirect controlled subsidiary of Parabel Inc. PA LLC transferred substantially all of its assets to Parabel Ltd. on January 29, 2013. The note payable and any accrued and unpaid interest are convertible at Dhabi’s option into the number of shares of common stock of Parabel Ltd. (the “Common Stock”) equal to the dollar amount being converted divided by $1.00 per share of Common Stock, subject to adjustment if certain events of dilution occur. In addition, the Senior Convertible Note and any accrued and unpaid interest are also convertible by Parabel Ltd. upon the approval of the holders of a majority of the Senior Convertible Notes then outstanding or upon a public offering in which Parabel Ltd. receives net proceeds of at least $50.0 million.

As of March 31, 2013 interest in the amount of $0.2 million was accrued related to the notes payable – unrelated party and is recorded as interest payable on the accompanying consolidated balance sheets.

Note 5 Stockholders’ Deficit

The Company’s equity consists of 300,000,000 shares of $.001 par value common stock, of which 106,920,730 shares had been issued and were outstanding as of March 31, 2013 and December 31, 2012, respectively. In addition, the Company may issue up to 25,000,000 shares of preferred stock. No preferred stock is outstanding.

Estimation of Common Stock Fair Value

In each reporting period, the Company has determined its best estimate of the fair value of its common stock by considering the following indicators of value:

•

Level 3 valuations based upon a discounted cash flow analysis using inputs which were not externally observable, in this case the Company’s estimate of future cash flows from the Company’s business; and

•

Prices paid in cash for shares of stock or securities units comprised of equity shares and five-year warrants to purchase equity shares; and

•

Over-The-Counter (“OTC”) quotation closing price and related statistics such as trading volume, volatility and recent price ranges.

Level 3 estimated cash flow valuations. The Level 3 fair value estimate of the Company’s equity value applied discounted cash flow valuation techniques to expected future cash flows from the Company’s business as of each valuation date. Key assumptions utilized in determining this fair value estimate include the expected amount and timing of revenue from expected future sales of the Company’s technology along with the associated cost of sales and other operating cash outflows. These cash flows are discounted back to present value using an interest rate consistent with development stage technology companies and the resulting enterprise value is converted to an equity value per outstanding share.

The most significant uncertainty inherent in these calculations is the risk of obtaining and performing the contracts necessary to produce the estimated future revenues. In addition, the risk of collection of amounts that are expected to be due under projected contracts, the risk of unanticipated product development or delivery costs and the risk of increased operating and overhead costs may each cause the estimates of future revenues to vary from the assumptions that are made in these projections, and these variations may be material. ~~Since the Company has not obtained or performed any commercial contracts to date, it does not have historical data on which to base its estimate of future revenues.~~

The fair value of the warrants was estimated using the Black-Scholes valuation model, based on the estimated fair value of the common stock on the valuation date, an expected dividend yield of 0%, a risk-free interest rate based on constant maturity rates published by the U.S. Federal Reserve applicable to the remaining term of the instruments, an expected life equal to the remaining term of the instruments and an estimated volatility of 7596.25%. Because the Level 3 indications of value were able to take into account important information pertaining to the amount, timing and risk of Company cash flows, they were given the most weight in the Company’s estimate of share value.

Third party transactions. The Company has completed several private sales of equity shares and securities units comprised of both equity shares and warrants to purchase additional equity shares over the reporting periods. The transactions were completed with both related and unrelated parties in exchange for cash. Given the size of these transactions and the sophisticated nature of the parties involved in their negotiation, these indications of value were given significant weight in the Company’s estimate of share value. However, because most of these transactions were with affiliates, sole or primary reliance was not placed on these values.

OTC Values. The Company’s common stock is currently traded on the OTCQB tier of OTC Markets Group. A very small percentage of the issued and outstanding shares are available for active trading since approximately 94% of the Company’s outstanding shares are held by its ~~principal~~controlling stockholder. Due to the very limited size of the Company’s public float and the resulting low trading volume in the Company’s common stock, its public shares are susceptible to very large swings in price based on very few trades. As a result of these considerations, value indications provided by the OTC price quotation service were given the least weight of the three factors in the Company’s estimate of share value.

1314

Issuance of Common Stock and Warrants

On January 15, 2009, the Company entered into a Stock Purchase Agreement with Engineering Automation and Design Inc., a Nebraska corporation (“EAD”), pursuant to which it issued 151,057 shares of common stock as partial consideration, in advance, for certain services relating to the design, engineering, and construction of facilities for the growth, harvesting and processing of micro-crops for demonstration of the Company’s technology to potential customers. In February 2010, EAD returned 106,126 shares of common stock to the Company, which were canceled. The shares earned and retained by EAD under the related agreements were accounted for at their estimated fair value at issuance of approximately $144,678 (44,931 shares at $3.22 fair value per share) and charged to research and development expense.

During December 2009, the Company issued approximately 9,500 shares of common stock valued at an estimated fair value of $5.50 per share for legal services.

During December 2009, the Company issued 357,143 units consisting of one share of common stock and a warrant to purchase a share of common stock at $15.00 for a period of five years in exchange for a 30% interest in Green Sciences Energy, LLC, a subsidiary of Congoo, LLC. The units were valued at $8.00 per unit or $2.9 million. The $8.00 fair value per unit was determined based upon contemporaneous issuances of identical units for $8.00 in cash. In addition, the Company used its fair value estimate to allocate the value of the units issued between the fair values of the common stock and warrants of $2.0 million ($5.66 per share) and $0.9 million ($2.34 per warrant), respectively. This allocation indicated that a very small premium (less than 5%) should be attributed to the allocated share price compared to its fair value.

In addition, during December 2009, the Company issued an additional 250,000 warrants exercisable at $8.00 per share for a period of six months and 250,000 warrants exercisable at $15.00 per share for a period of six months. The Company estimated the fair value of the 500,000 additional warrants using the Black-Scholes option pricing model and the same assumptions stated above, resulting in an estimated fair value of the options of $0.2 million. The sum of the estimated fair value of the securities issued was approximately $3.0 million.

From February 12, 2010 to August 6, 2010, the Company sold 797,500 units, each unit consisting of one share of common stock and a warrant to purchase a share of common stock at $15.00 for a period of five years, for $8.00 per unit or $6.4 million as follows:

•

687,500 units to an affiliate; and

•

110,000 units to third parties.

The proceeds of the 797,500 units issued were allocated between the common stock and the warrants based upon their respective estimated fair values on the date of the issuance. This allocation attributed $4.5 million (or $5.52 to $5.60 per share) to the common stock issued and $1.9 million to the warrants issued (or $2.40 to $2.48 per warrant). For the warrants, the Company estimated the fair value using the Black-Scholes valuation model, based on the estimated fair value of the common stock on each valuation date ($5.89 to $6.67 per share), an expected dividend yield of 0%, a risk-free interest rate based on the yield of 5-year U.S. Treasury securities on each valuation date (1.78% to 2.62%), an expected life of five years and an estimated volatility of 75.2%.

The 687,500 units sold to the affiliate contained share price and warrant exercise price guarantees. The purchase price of the common stock and the exercise price of the warrants would have been adjusted in the event that the Company issued common stock or warrants at a price below $8.00 for common shares or a $15.00 exercise price for warrants for a period of six months from the purchase date. All of the aforementioned share price guaranty periods expired during 2010 and no adjustments were necessary.

OnThe ~~November~~former ~~1, 2010, in anticipation of Mr. Rob Harris’ employment as~~ President and Chief Operating Officer, ~~the Company issued and sold 12,500 shares of its common stock to Mr. Harris at a price of $8.00 per share. Mr. Harris~~ also received a put option which gave him the option to sell any or all of the shares back to the Company for a purchase price of $8.00 at any time within one year of the original transaction. In accordance with (“ASC”) 480-10-25-8, the proceeds were recorded as liabilities related to equity issuance on the accompanying consolidated balance sheet as of December 31, 2010. During January 2011, ~~Mr.~~he ~~Harris~~ exercised his ~~put~~ option and the Company repurchased all 12,500 shares of common stock for $100,000.

14No shares were issued during the first quarter of 2012 or 2013, respectively.

~~No shares were issued during 2011 or 2012.~~15

Non-controlling Interest and PA LLC Equity Incentive Plan

Class A Units

During 2006, the Company issued 5% of the Class A voting units (1,000,000 units) of PA LLC as partial consideration for a license to certain technology from Arizona Technology Enterprises, LLC (“AzTE”). AzTE was granted anti-dilution rights and was entitled to 5% of the fully diluted capitalization of PA LLC. On June 2, 2010, the Company entered into an agreement with AzTE that provided for recovery of the 1,000,000 Class A voting units of PA LLC and the cancellation of all existing and future obligations and agreements between the Company and AzTE, in exchange for the return of certain AzTE-licensed technology and a payment of $0.6 million. The Company remitted the payment to AzTE on June 3, 2010 and the units of PA LLC were received and cancelled on June 3, 2010. The return of the Class A voting units of PA LLC effectively nullified the anti-dilution rights that were previously granted to AzTE.

The transaction with AzTE was accounted for as a return or repurchase of equity interests of PA LLC. The Company followed the guidance of ASC 810-10-45-23 and handled changes in the parent’s ownership by adjusting the carrying amount of the controlling and non-controlling interests based on the change in their respective ownership share in the subsidiary. This transaction increased the parent or controlling interest from approximately 82% to approximately 87%, which gave rise to a debit of $1.7 million to paid in capital attributable to Parabel Inc., since PA LLC had a large deficit accumulated during the development stage. In addition, the amount paid of $0.6 million was also recorded in paid in capital since it represents the cost to the controlling interest of acquiring a portion of the interest in the subsidiary that it did not previously own. The net effect of this transaction increased shareholders’ deficit attributable to Parabel Inc. by $2.3 million.

Class B Units

PA LLC has an equity compensation plan which allows it to grant employees and consultants awards of profits interests in restricted Class B ownership units (the “Interests”). These Interests give the recipient the right to participate in the income of PA LLC and any distribution that may arise from a liquidity event to the extent that such realized amounts exceed the ownership unit fair value at the date of grant. The Company granted 2,816,471 and 674,500 Interests during 2008 and 2007, respectively, to a number of its employees as of the date that they began employment with the Company.

During the third quarter of ~~2012~~2008, ~~the~~five ~~Company~~senior ~~gave~~officers ~~each~~were ~~Class~~granted Ban ~~unit~~aggregate ~~holder~~1.34 ~~the~~million ~~option~~Interests tothat ~~elect~~were subject to ~~convert~~repurchase ~~their~~for ~~Class~~$0.01 Bper ~~units~~unit ~~into~~until ~~Class~~a Csignificant ~~units,~~liquidity ~~which~~event ~~would~~occurred. ~~enable~~Because ~~them~~that ~~(at~~condition ~~the~~had ~~discretion~~not ofyet ~~the~~been ~~board~~met, ofthese ~~directors)~~grants towere ~~convert~~considered ~~their~~contingent ~~Class~~and Chad ~~units~~not ~~into~~been ~~shares of Parabel Inc~~amortized. ~~common~~The ~~stock~~amount atand anature ~~conversion ratio~~ of ~~4.2~~the ~~shares~~liquidity ~~per~~event ~~Class~~was Cchanged ~~unit. The~~in ~~Company~~July ~~accounted~~2009 ~~for~~from ~~this transaction as~~ a ~~modification~~requirement ofto anobtain ~~award,~~$150.0 ~~and~~million ~~the Company accordingly computed the fair value~~ of ~~the~~distributions ~~new~~and/or ~~awards~~debt asrepayments ~~compared~~ to the ~~fair~~Company’s ~~value~~principal ofstockholder ~~the~~to ~~original~~a ~~awards~~requirement ~~immediately~~to ~~before~~obtain ~~their terms were modified~~$25. ~~There~~0 ~~was~~million noof ~~additional~~new ~~compensation~~liquidity ~~cost recorded~~ for the ~~712,170~~Company. ~~units~~This ~~that~~change ~~were~~resulted ~~converted~~in ~~from~~a ~~Class~~$4.6 Bmillion toincrease ~~Class~~in ~~C as~~ the ~~fair~~unrecognized ~~value~~compensation ofexpense ~~the Class B units was substantially equal~~ to ~~the~~$6.0 ~~fair value of the Class C units as of the conversion date~~million.

AsDuring ofthe ~~September~~fourth 30quarter of 2010, ~~2012~~the ~~and~~Company’s ~~December~~principal ~~31,~~stockholder ~~2011,~~modified the ~~granted~~terms ~~Interests,~~of ~~net~~the ofgrant ~~Interests~~to ~~forfeited,~~remove ~~repurchased~~the byright of the Company, orto ~~converted~~repurchase tothe ~~Class~~Interests Cheld ~~units,~~by ~~totaled~~all ~~763~~five officers,~~251~~ ~~and~~causing ~~2,753,171,~~these ~~respectively,~~grants orto ~~3.4%~~be ~~and~~immediately 12vested.~~7%,~~ ~~respectively,~~This ofdecision ~~total~~required ~~outstanding~~a ~~units.~~revaluation ~~These~~of the Interests ~~give~~held by the ~~recipient~~officers and immediate recognition of the ~~right~~calculated toexpense. ~~participate~~Based inupon current estimates and applying the ~~income~~same ofdiscounted PAcash ~~LLC~~flow ~~and~~methodology ~~any~~used ~~distribution~~as ~~that~~of ~~may~~the ~~arise~~prior ~~from~~valuation adates, ~~liquidity~~the ~~event~~compensation cost was increased to $11.4 million during the ~~extent~~fourth ~~that~~quarter ~~such~~of ~~realized~~2010 ~~amounts~~and ~~exceed~~recognized ~~the~~as ~~ownership~~selling, ~~unit~~general ~~fair~~and ~~value~~administrative atexpense ~~the~~of ~~date~~$9.1 million or research and development expense of ~~grant~~$2.3 million depending upon each officer’s role in the Company.

~~The~~On ~~Company~~June ~~determined~~8, 2012, the ~~fair~~Company ~~value~~entered into an agreement with certain of ~~these~~its ~~grants~~former byemployees ~~estimating~~and ~~the~~senior ~~proceeds~~officers that itprovided ~~may~~for ~~obtain~~the ~~from~~recovery aof ~~range~~980,000 Class B units of ~~possible~~PA ~~future~~LLC ~~liquidity~~and ~~events~~the ~~such~~release asof aclaims ~~public~~for ~~equity~~deferred ~~offering~~compensation orrelated ~~the~~to ~~sale~~their employment with PA LLC, in exchange for a payment of ~~the~~$0.4 ~~Company~~million. The ~~timing~~Company ofremitted ~~such~~the ~~liquidity~~payment ~~events~~on June 13, 2012 and the ~~likelihood~~units of ~~their~~PA ~~achievement~~LLC were received and cancelled on June 13, 2012. The settlement paid to the former employees and officers was ~~estimated~~allocated between the deferred compensation liability and the Class B units based upon the ~~information~~proportionate ~~that~~fair ~~existed~~market asvalue of each to the ~~grant~~total orof ~~valuation~~$0.4 ~~date~~million. The ~~weighted~~transaction ~~average~~was ~~future~~accounted ~~cash~~for ~~value~~as ~~was~~a ~~then~~gain ~~discounted~~on ~~using~~the settlement of an ~~annual~~accrued ~~discount~~liability ~~rate~~and a return or repurchase of ~~60%~~equity ~~and~~interests of PA LLC. A gain of $0.4 million associated with the ~~weighted~~settlement ~~average~~of ~~time~~the ~~from~~deferred ~~grant~~compensation orclaim ~~valuation~~was ~~date~~recognized toin selling, general and administrative expense during the ~~liquidity~~three ~~event~~months ended June 30, 2012. ~~This~~The ~~estimated~~Company ~~cash~~followed ~~present~~the ~~value~~guidance ~~was~~of ~~converted~~ASC 810-10-45-23 with respect to athe ~~per~~recovery ~~share~~of ~~cash~~the ~~value~~Class B units and, handled the change in the parent’s ownership by adjusting the carrying amount of the controlling and non-controlling interests based on the ~~structure~~change ofin their respective ownership share in the ~~grant~~subsidiary. In addition, the ~~carrying~~ amount ~~per~~paid ~~unit~~of $0.4 million was ~~subtracted~~also torecorded ~~determine~~in paid in capital since it represents the ~~fair~~cost ~~value~~to the controlling interest of ~~each~~acquiring a portion of the ~~Interests~~interest in the subsidiary that it did not previously own. The net effect of this transaction increased shareholders’ deficit attributable to Parabel Inc. by $1.1 million.

The grants of Interests contain restrictions that allow the Company to repurchase the units for $0.01 per unit until a service period or other condition is met. This restriction is removed over a service period (generally four years) with regard to approximately 2.15 million Interests. On March 4, 2011, the Company modified the terms of the Interests granted to a former employee, causing the Interests to be immediately vested. This decision required a revaluation of the Interests and immediate recognition of additional compensation cost in the amount of $0.8 million, recorded as research and development expense, based upon the nature of the former employee’s role with the Company.

For the three months ended September 30, 2012 and 2011, compensation expense related to these Interests was $0.0 million and $0.1 million, respectively. For the nine months ended September 30, 2012 and 2011, and the period from September 22, 2006 (inception) to September 30, 2012, compensation expense related to these Interests was $0.0 million, $1.1 million, and $18.8 million, respectively. The related compensation expense is recognized as selling, general and administrative expense or research and development expense depending upon the recipient’s role in the Company. Amounts recognized as selling, general and administrative expense were $0.0 million and $0.0 million for the three months ended September 30, 2012 and 2011, respectively. For the nine months ended September 30, 2012 and 2011, and the period from September 22, 2006 (inception) to September 30, 2012, compensation expense recognized as selling, general and administrative expense related to these Interests was $0.0 million, $0.0 million, and $12.3 million, respectively. Amounts recognized as research and development expense were $0.0 million and $0.1 million for the three months ended September 30, 2012 and 2011, respectively. For the nine months ended September 30, 2012 and 2011, and the period from September 22, 2006 (inception) to September 30, 2012, compensation expense recognized as research and development expense related to these Interests was $0.0 million, $1.1 million, and $6.5 million, respectively.

Unrecognized compensation cost related to 182 Interests which remain restricted totaled approximately $0.0 million as of September 30, 2012. An aggregate of 28,000, 83,000, and 766,000 of these Interests were forfeited during the nine months ended September 30, 2012 and 2011, and the period from September 22, 2006 (inception) to September 30, 2012, respectively.

Five senior officers were granted an aggregate 1.34 million Interests that were subject to repurchase for $0.01 per unit until a significant liquidity event occurred. Because that condition had not yet been met, these grants were considered contingent and had not been amortized. The amount and nature of the liquidity event was changed in July 2009 from a requirement to obtain $150.0 million of distributions and/or debt repayments to the Company’s principal stockholder to a requirement to obtain $25.0 million of new liquidity for the Company. This change resulted in a $4.6 million increase in the unrecognized compensation expense to $6.0 million.

During the fourth quarter of 2010, the Company’s principal stockholder modified the terms of the grant to remove the right of the Company to repurchase the Interests held by all five officers, causing these grants to be immediately vested. This decision required a revaluation of the Interests held by the officers and immediate recognition of the calculated expense. Based upon current estimates and applying the same discounted cash flow methodology used as of the prior valuation dates, the compensation cost was increased to $11.4 million during the fourth quarter of 2010 and recognized as selling, general and administrative expense ($9.1 million) or research and development expense ($2.3 million) depending upon each officer’s role in the Company.

On June 8, 2012, the Company entered into an agreement with certain of its former employees and senior officers that provided for the recovery of 980,000 Class B units of PA LLC and the release of claims for deferred compensation related to their employment with PA LLC, in exchange for a payment of $0.4 million. The Company remitted the payment on June 13, 2012 and the units of PA LLC were received and cancelled on June 13, 2012. During the third quarter of 2012, the Company cancelled an additional 270,000 Class B units of PA LLC that were originally granted to a former senior officer of the Company.

~~The~~During ~~settlement paid to~~ the ~~former~~third ~~employees~~quarter ~~and~~of ~~officers~~2012, ~~was allocated between~~ the ~~deferred~~Company ~~compensation~~gave ~~liability~~each ~~and the~~ Class B ~~units~~unit ~~based~~holders ~~upon~~ the ~~proportionate~~option ~~fair~~to ~~market~~elect ~~value of each~~ to ~~the~~convert ~~total~~their ofClass ~~$0.4~~B ~~million.~~units ~~The~~into ~~transaction~~Class ~~was~~C ~~accounted~~units, ~~for~~which aswould aenable ~~gain~~them on(at the ~~settlement~~discretion of anthe ~~accrued~~board ~~liability~~of ~~and~~directors) ato ~~return~~convert ortheir ~~repurchase~~Class ofC ~~equity~~units ~~interests~~into shares of PAParabel ~~LLC~~Inc. Acommon ~~gain~~stock ofat ~~$0.4~~a ~~million~~conversion ~~associated~~ratio ~~with the settlement~~ of ~~the~~4.2 ~~deferred~~shares ~~compensation~~per ~~claim~~Class ~~was~~C ~~recognized in selling, general and administrative expense during the three months ended June 30, 2012~~unit. The Company ~~followed~~accounted ~~the~~for ~~guidance~~this oftransaction ~~ASC~~as ~~810-10-45-23~~a ~~with~~modification ~~respect to the recovery~~ of ~~the~~an ~~Class~~award, ~~B units~~ and ~~handled~~ the ~~change~~Company inaccordingly ~~the~~computed ~~parent’s ownership by adjusting~~ the ~~carrying~~fair ~~amount~~value of the ~~controlling~~new ~~and~~awards ~~non-controlling~~as ~~interests~~compared ~~based~~to on the ~~change~~fair invalue ~~their~~of ~~respective~~the ~~ownership~~original ~~share~~awards inimmediately ~~the~~before ~~subsidiary.~~their ~~This~~terms ~~transaction~~were ~~increased~~modified. ~~the~~There ~~parent~~was orno ~~controlling~~additional ~~interest~~compensation ~~from~~cost ~~approximately~~recorded ~~87%~~for tothe ~~approximately 92%~~712,170 ~~which~~units ~~gave~~that ~~rise~~were toconverted afrom ~~debit~~Class ofB ~~$0.7 million~~ to ~~paid~~Class inC ~~capital~~as ~~attributable to Parabel Inc., since PA LLC had a large deficit accumulated during~~ the ~~development~~fair ~~stage.~~market Invalue ~~addition,~~of the ~~amount~~Class ~~paid~~B ofunits ($06.448 ~~million~~per unit) was ~~also recorded~~ in ~~paid~~excess inof ~~capital since it represents~~ the ~~cost~~OTCQB totrading ~~the~~price ~~controlling interest~~ of ~~acquiring a portion of~~ the ~~interest~~Parabel inInc. ~~the~~shares ~~subsidiary~~of ~~that~~$1.22 itper ~~did~~share ~~not~~(multiplied ~~previously~~by ~~own~~the 4.2 ~~The~~conversion ~~net~~ratio) ~~effect~~as of ~~this~~the ~~transaction~~conversion ~~increased shareholders’ deficit attributable to Parabel Inc~~date. ~~by $1.1 million.~~

During the fourth quarter of 2012, the Company repurchased 819,853 Class CB Units from former employees and cancelled those units. During the year ended December 31, 2012, 28,857 of unvested units were forfeited as a result of employees leaving the Company. During the third quarter of 2012, the Company offered Class B unit holders an opportunity to convert their Class B units into Class C units. As a result, 712,170 Class B units were converted into Class C units.

AsDuring ~~disclosed in Note 8 to~~ the ~~Company’s~~first ~~Annual~~quarter ~~Report~~of ~~on Form 10-K~~2013, ~~which was filed with~~ the ~~SEC on March 30, 2012, the~~ Company ~~issued~~repurchased ~~an option in 2008 to XL Tech to acquire 2~~36,~~029,337~~000 ~~ownership~~Class ~~units~~B inUnits PAfrom ~~LLC~~former atemployees ~~a price of less than one cent each, in connection with continued borrowings under a Company debt facility outstanding with XL Tech. The debt facility~~ and ~~the~~cancelled ~~option~~those were subsequently acquired by PetroTech. The issuance of this option was accounted for as an original issue discount on the related debt in the initial amount of approximately $1.5 million and was amortized over the original term of the debt. During the third quarter of 2012, PetroTech exercised their option to acquire 2,029,337 ownership units ~~in PA LLC and simultaneously elected to convert them to Class C units~~.

As of ~~September~~March 3031, ~~2012,~~2013 aand ~~total~~December of31, 22012,~~741,507~~ total Class CB units ~~were~~ outstanding~~. This~~ ~~represents~~were ~~12.2%~~170,691 ofand ~~total~~206,691, ~~outstanding~~respectively, ~~units~~or 0.8% ~~These~~and ~~units~~0.9%, ~~are convertible into 11~~respectively,~~514,329~~ ~~shares~~ of ~~common~~total ~~stock~~outstanding ~~at the discretion of the Company’s board of directors~~units.

The Company determined the fair value of these grants by estimating the proceeds that it may obtain from a range of possible future liquidity events such as a public equity offering or the sale of the Company. The timing of such liquidity events and the likelihood of their achievement was estimated based upon the information that existed as of the grant or valuation date. The weighted average future cash value was then discounted using an annual discount rate and the weighted average time from grant or valuation date to the liquidity event. This estimated cash present value was converted to a per share cash value and, based on the structure of the grant, the carrying amount per unit was subtracted to determine the fair value of each of the Interests.

For the three months ended March 31, 2013 and 2012, and for the period from September 22, 2006 (inception) to March 31, 2013, compensation expense related to these Interests was $0.0 million, $0.0 million, and $21.5 million, respectively. The related compensation expense is recognized as selling, general and administrative expense or research and development expense depending upon the recipient’s role in the Company. Amounts recognized as selling, general and administrative expense were $0.0 million, $0.0 million, and $14.8 million for the years ended March 31, 2013, 2012, and for the period from September 22, 2006 (inception) to March 31, 2013, respectively. Amounts recognized as research and development expense were $0.1 million, $0.0 million, and $6.7 million for the years ended March 31, 2013, 2012, and for the period from September 22, 2006 (inception) to March 31, 2013, respectively. An aggregate of 36,000, 26,000, and 828,600 of these Interests were forfeited during the periods ended March 31, 2013, 2012, and the period from September 22, 2006 (inception) to March 31, 2013, respectively.

Management Options Class C Units

The Company issued an option in 2008 to XL Tech to acquire 2,029,337 ownership units in PA LLC at a price of less than one cent each, in connection with continued borrowings under a Company debt facility outstanding with XL Tech. The debt facility and the option were subsequently acquired by PetroTech. The issuance of this option was accounted for as an original issue discount on the related debt in the initial amount of approximately $1.5 million and was amortized over the original term of the debt. During the third quarter of 2012, PetroTech exercised their option to acquire 2,029,337 ownership units in PA LLC and simultaneously elected to convert them to Class C units. The $1.5 million that was originally accounted for as an original issue discount has been reclassified to non-controlling interest on the accompanying consolidated balance sheet as of December 31, 2012, along with the $2,029 exercise price received by the Company.

As of March 31, 2013, a total of 2,741,507 Class C units were outstanding. This represents 12.5% of total outstanding units. These units are convertible into 11,514,329 shares of common stock of Parabel Inc. at the discretion of the Company’s board of directors.

Class D Units

On November 8, 2012, the limited liability company agreement of PA LLC was amended and restated to provide for a new class of units (“Class D Units”) that are issuable to Parabel Inc. upon such terms and conditions as the board of directors of PA LLC may authorize. Unless specifically required otherwise by non-waivable provisions of the PA LLC operating agreement and notwithstanding anything contained herein to the contrary, Class D units shall not be entitled to vote on any matter submitted to the Members, but shall have such other rights, privileges, preferences, and obligations as are specifically provided for in this Agreement for Class D units. No Class D units shall be issued other than to the Company and upon such terms and conditions as the Board shall authorize.

Non-controlling Interest

As of ~~September 30~~March 31, ~~2012~~2013 and December 31, ~~2011~~2012, non-controlling interests collectively owned approximately 1513.63% and 1213.73%, respectively, of PA LLC, and have absorbed their respective portion of the loss of PA LLC. The amount of loss absorbed was $0.7 million, ~~and~~ $0.87 million ~~for the three months ended September 30, 2012~~ and ~~2011, respectively. The amount of loss absorbed was~~ $220.59 million, ~~$2.8 million and $19.3 million,~~ for ~~the~~three ~~nine~~ months ended ~~September 30~~March 31, ~~2012~~2013 and ~~2011~~2012, and the period from September 22, 2006 (inception) to ~~September 30~~March 31, ~~2012~~2013, respectively.

Options to Acquire PA LLC Units

From May 21, 2012 to ~~September~~December 2431, 2012, the Company granted certain of its employees 440,000 options, in the aggregate, to purchase Interests at an exercise price of $1.00 per Interest. The options vest over various terms, with 390,000 vested immediately upon grant, 30,000 vesting over a one-year period and 20,000 vesting based upon completion of a project. The fair value of the options when granted aggregated to $2.7 million and was calculated using the Black-Scholes pricing model with the following assumptions determined as of the date of grant: estimated fair value of the Interest of $6.48, expected term of 10 years, risk free interest rates ranging from 1.46% to 1.74%, an estimated volatility of 96.5%, and a dividend yield of 0%.

During the three- ~~and~~months ~~nine-month periods~~ ended ~~September~~March 3031, ~~2012~~2013, approximately $0.1 million ~~and~~was ~~$2.5 million, respectively, were~~ charged to operations related to the outstanding options. OfThe ~~the~~total $~~2.5 million, $2.3 million was recognized as selling, general and administrative expense and $~~0.21 million was recognized as research and development expense, depending upon the recipient’s role in the Company. The fair value related to unvested options totaled $0.21 million and will be charged to operations over the remaining term of the options.

17All of the holders of the above options elected to convert their options into options to acquire Class C units during the third quarter of 2012. The conversion was treated as a modification that did not result in any additional compensation expense as the fair market value of the options to acquire Class C units was in excess of the OTCQB trading price of the Parabel Inc. shares of $1.22 per share (multiplied by the 4.2 conversion ratio) as of the conversion date.

~~All~~As of ~~the~~December ~~above~~31, ~~options~~2012, ~~were~~the ~~converted to~~ options togranted, ~~acquire~~net ~~Class C units during the third quarter~~ of ~~2012~~forfeitures, ~~pursuant~~totaled ~~to an election made by the individual option holders~~420,000. ~~The~~There ~~conversion~~were ~~was~~no ~~treated~~options asgranted aduring ~~modification~~the ~~that~~quarter ~~did~~ended ~~not~~March ~~result~~31, in2013. ~~any~~Upon ~~additional~~exercise, ~~compensation~~these ~~expense~~options aswould ~~the~~be ~~fair~~convertible ~~value~~into of1,764,000 ~~the~~shares ~~options~~of tocommon ~~acquire~~stock ~~Class~~at ~~B units was substantially equal to~~ the ~~fair~~ ~~value~~discretion of the ~~options~~Company’s toboard ~~acquire Class C units as~~ of ~~the conversion date~~directors.

AsManagement ofOptions ~~September~~to ~~30,~~Acquire ~~2012,~~Common ~~the~~Stock ~~options granted, net~~ of ~~forfeitures,~~Parabel ~~totaled 420,000~~Ltd. ~~Upon exercise, these options would be convertible into 1,764,000 shares of common stock at the discretion of the Company’s board of directors.~~

On January 29, 2013 the Company granted its CEO, CFO and COO 6,780,000, 1,692,250 and 1,692,250 options respectively, to purchase common stock of Parabel Ltd at an exercise price of $1.11. The Option shall vest quarterly over a three (3) year period, 40% of the Option shall vest equally at the end of each of the first four consecutive quarters following the grant date, 30% of the Option shall vest equally at the end of each of the next four consecutive quarters, and the remaining 30% of the Option shall vest equally at the end of each of the next four consecutive quarters.

The fair value of the options when granted aggregated to $7.8 million and was calculated using the Black-Scholes pricing model. This calculation used the following assumptions determined as of January 29, 2013: estimated fair value of the common stock of $1.00, expected term of 6.05 years , risk free interest rate of 2.03%, an estimated volatility of 96.5%, and a dividend yield of 0%. As of March 31, 2013, the compensation costs related to these options was $0.5 million.

Stock Options

On June 17, 2009, the Company adopted the 2009 Equity Compensation Plan (the “2009 Plan”). The 2009 Plan is intended to provide employees, consultants and others the opportunity to receive incentive stock options and is limited to 4,000,000 shares of the Company’s common stock. The exercise price shall be equal to or greater than the fair value of the underlying common stock on the date the option is granted and its term shall not exceed 10 years. Awards shall not vest in full prior to the third anniversary of the award date.

On January 1, 2011, the Company granted its employees 623,000 options, in the aggregate, to purchase common shares at an exercise price of $8.00 per share. The options generally vest over a period of four years from the grant date and expire 10 years from the grant date. The grant date fair value of the options aggregated to $1.9 million and was calculated using the following assumptions determined as of the date of grant: estimated fair value of the common stock of $5.10, expected term of 6.25 years, risk free interest rate of 2.0%, an estimated volatility of 75.2%, and a dividend yield of 0%. The expected term of options granted to employees was based upon the simplified method allowed for “plain vanilla” options as described by SEC Staff Accounting Bulletin (“SAB”) No. 110. The fair value will be charged to operations over the remaining vesting periods commencing on the employee’s hire date or the grant date, depending upon terms of individual grants.

On June 30, 2011, the Company’s board of directors authorized the re-pricing of all outstanding stock options, changing the exercise price from $8.00 or $8.50 to $5.50 per option. In accordance with ASC 718-20-35-3, the Company computed the additional compensation cost as the fair value of the new awards in excess of the fair value of the original awards immediately before their terms were modified, using the Black-Scholes pricing model. This calculation used the following assumptions determined as of June 30, 2011: estimated fair value of the common stock of $5.10, remaining terms ranging from 4.75 years to 5.89 years (depending on the date of the original grant), risk free interest rate of 1.76%, an estimated volatility of 96.5%, and a dividend yield of 0%. The modification affected 1,240,000 options and resulted in aggregate additional compensation cost of $0.4 million. Of the total additional compensation cost, $0.2 million was expensed immediately as it related to options which were vested as of June 30, 2011, and $0.2 million will be expensed through 2014.

Due to the significant number of equity transactions that occurred during June of 2011, including the stock option modification discussed above and the stock option and the stock appreciation rights (“SARs”) issuances discussed below, the Company re-examined its volatility estimate and consequently increased it from 75.2% to 96.5% on a prospective basis. The Company estimates volatility in accordance with SEC SAB No. 107, “Share-based Payment” based on an analysis of expected volatility of share trading prices for a peer group of companies. Over a period of time similar to that of the expected option life, the volatility in share price of these alternative energy and clean-tech companies averaged 70.4%. To account for the fact that the Company is in the development stage and can be expected to have a higher volatility at its present stage than the average of the comparable companies, the Company adjusted upward its volatility estimate. Specifically, the Company estimated its share volatility by calculating the average volatility of those members of its peer group that exhibited volatility measures in the top quartile of the group. Using this approach, the Company determined that a volatility estimate of 96.5% is appropriate in its fair value calculations.

companies averaged 70.4%. To account for the fact that the Company is in the development stage and can be expected to have a higher volatility at its present stage than the average of the comparable companies, the Company adjusted upward its volatility estimate. Specifically, the Company estimated its share volatility by calculating the average volatility of those members of its peer group that exhibited volatility measures in the top quartile of the group. Using this approach, the Company determined that a volatility estimate of 96.5% is appropriate in its fair value calculations.

On June 30, 2011, the Company’s board of directors authorized the grant of 616,000 options to employees, in the aggregate, to purchase common shares at an exercise price of $5.50 per share. Of the 616,000 options authorized, 351,000 were granted on June 30, 2011 and the remaining 265,000 were granted on July 21, 2011. The options generally vest over a period of four years from the grant date and expire 10 years from the grant date. The fair value of the options when granted aggregated to $2.4 million and was calculated using the Black-Scholes pricing model with the following assumptions determined as of the date of grant: estimated fair value of the common stock of $5.10, expected term of 6.25 years, risk free interest rate of 1.76%, an estimated volatility of 96.5%, and a dividend yield of 0%. The expected term of options granted to employees was based upon the simplified method allowed for “plain vanilla” options as described by SEC SAB No. 110. The fair value will be charged to operations over the remaining vesting periods commencing on the employee’s hire date or the grant date, depending upon terms of individual grants.

18On January 29, 2013 the Company’s board of directors authorized the re-pricing of all of Parabel Inc.’s outstanding stock options, changing the exercise price from $5.50 to $1.23 per option. In accordance with ASC 718-20-35-3, the Company computed the compensation cost as the fair value of the new awards in excess of the fair value of the original awards immediately before their terms were modified, using the Black-Scholes pricing model. This calculation used the following assumptions determined as of January 29, 2013: estimated fair value of the common stock of $1.00, remaining terms ranging from 3.75 years to 5.71 years (depending on the date of the original grant), risk free interest rate of 0.90%, an estimated volatility of 96.5%, and a dividend yield of 0%. The modification affected 615,000 options and resulted in aggregate additional compensation cost of $0.2 million. Of the total compensation cost, $0.1 million was expensed immediately as it related to options which were vested as of January 29, 2013, and $0.1 million will be expensed through 2016.

On May 17, 2012, the Company granted 200,000 options to its newly appointed Chief Financial Officer to purchase common shares at an exercise price of $5.50 per share. The options vest over a period of four years from the grant date and expire 10 years from the grant date. The fair value of the options when granted aggregated to $0.2 million and was calculated using the Black-Scholes pricing model with the following assumptions determined as of the date of grant: estimated fair value of the common stock of $1.60, expected term of 6.25 years, risk free interest rate of 0.73%, an estimated volatility of 96.5%, and a dividend yield of 0%. The expected term of the options was based upon the simplified method allowed for “plain vanilla” options as described by SEC SAB No. 110. The fair value will be charged to operations over the remaining vesting period commencing on the grant date.

On August 27, 2012, the Company granted 100,000 options to a member of senior management to purchase common shares at an exercise price of $5.50 per share. The options vest over a period of four years from the grant date and expire 10 years from the grant date. The fair value of the options when granted aggregated to $0.1 million and was calculated using the Black-Scholes pricing model with the following assumptions determined as of the date of grant: estimated fair value of the common stock of $1.60, expected term of 6.25 years, risk free interest rate of 0.68%, an estimated volatility of 96.5%, and a dividend yield of 0%. The expected term of the options was based upon the simplified method allowed for “plain vanilla” options as described by SEC SAB No. 110. The fair value will be charged to operations over the remaining vesting period commencing on the grant date.

The weighted average period over which options not vested through September 30, 2012 are expected to vest is 34 months. During the three months ended September 30, 2012 and 2011, approximately $0.1 million and $0.2 million, respectively, were charged to operations related to all of the outstanding options. During the nine months ended September 30, 2012 and 2011, and for the period from September 22, 2006 (inception) to September 30, 2012, approximately $0.1 million, $0.7 million, and $2.6 million, respectively, was charged to operations related to all of the outstanding options. The fair value related to unexercisable stock options as of September 30, 2012 totaled approximately $1.8 million and is expected to be expensed over the next four years.

A summary of stock option activity is as follows:

	Number of Shares			Weighted Average Exercise Price			Weighted Average Fair Value
Balance at December 31, 2008		-		$	-		$	-
Granted June 2009		1,072,500		$	5.50		$	2.70
Granted July 2009		45,000		$	5.50		$	2.83
Forfeited		(200,000	)	$	(5.50	)	$	(2.70	)
Balance at December 31, 2009		917,500		$	5.50		$	2.37
Granted January 2010		322,000		$	5.50		$	3.80
Forfeited		(247,750	)	$	(5.50	)	$	(2.95	)
Balance at December 31, 2010		991,750		$	5.50		$	2.68
Granted January 2011		623,000		$	5.50		$	3.27
Granted June 2011		351,000		$	5.50		$	3.96
Granted July 2011		265,000		$	5.50		$	3.96
Forfeited		(885,750	)	$	(5.50	)	$	(3.11	)
Balance at December 31, 2011		1,345,000		$	5.50		$	3.49
Granted May 2012		200,000		$	5.50		$	0.98
Granted August 2012		100,000		$	5.50		$	0.98
Forfeited		(773,938	)	$	(5.50	)	$	(3.29	)
Balance at September 30, 2012		871,062		$	5.50		$	2.81

The weighted average ~~grant~~period ~~date~~over ~~fair~~which ~~value~~options ~~for~~not vested ~~options~~through asMarch 31, of2013 ~~September~~are 30expected to vest is 34 months. During the three months ended March 31, ~~2012~~2013 and ~~2011~~2012, ~~was~~approximately $30.632 million and $30.110 million, respectively., ~~The~~was ~~weighted~~charged ~~average~~to ~~grant~~operations ~~date~~related to all of the outstanding options. The fair value ~~for~~related ~~unvested~~to unexercisable stock options as of ~~September 30~~March 31, ~~2012~~2013 ~~and~~totaled ~~2011~~approximately ~~was~~ $21.605 million and ~~$3.66,~~is ~~respectively~~expected to be expensed over the next three years.

~~The~~A ~~weighted~~summary ~~average contractual life~~ of stock ~~options~~option atactivity ~~September~~is ~~30, 2012 and 2011 was~~ as follows:

	2012			2011
	Number of Shares			Weighted Average Exercise Price			Weighted Average Fair Value
Vested (yrs)		8.3			7.2
Balance at December 31, 2008		—		$	—		$	—
Unvested (yrs)		9.1			9.4
Granted June 2009		1,072,500		$	5.50		$	2.70
Total outstanding (yrs)		9.0			8.7
Granted July 2009		45,000		$	5.50		$	2.83
Forfeited		(200,000	)	$	(5.50	)	$	(2.70	)
Balance at December 31, 2009		917,500		$	5.50		$	2.37
Granted January 2010		322,000		$	5.50		$	3.80
Forfeited		(247,750	)	$	(5.50	)	$	(2.95	)
Balance at December 31, 2010		991,750		$	5.50		$	2.68
Granted January 2011		623,000		$	5.50		$	3.27
Granted June 2011		351,000		$	5.50		$	3.96
Granted July 2011		265,000		$	5.50		$	3.96
Forfeited		(885,750	)	$	(5.50	)	$	(3.11	)
Balance at December 31, 2011		1,345,000		$	5.50		$	3.49
Granted May 2012		200,000		$	5.50		$	0.98
Granted August 2012		100,000		$	5.50		$	0.98
Forfeited		(867,750	)	$	(5.50	)	$	(3.31	)
Balance at December 31, 2012		777,250		$	5.50		$	2.73
Forfeited		(17,250)		$	(1.23	)	$	(3.25	)
Balance at March 31, 2013		760,000		$	1.23		$	2.11

AsThe ofweighted ~~September~~average ~~30,~~grant ~~2012,~~date afair ~~total~~value offor ~~180,104~~vested ~~of the~~ options ~~granted~~as ~~were~~of ~~exercisable~~March 31, 2013 and ~~the~~2012 ~~fair~~was ~~value~~$3.95 ofand ~~such options was~~ $03.709, ~~million~~respectively. The ~~Company~~weighted ~~estimates~~average ~~forfeiture~~grant ~~rates~~date atfair ~~the~~value ~~time~~for ~~the~~unvested options ~~are~~as ~~granted~~of ~~and~~March 31, ~~accounts~~2013 ~~for~~and ~~the~~2012 ~~difference~~was ~~between~~$2.66 ~~estimated forfeitures~~ and ~~actual~~$3.71, ~~forfeitures in the period in which they occur~~respectively.

The weighted average contractual life of stock options at March 31, 2013 and 2012 was as follows:

	2013		2012
Vested (yrs)		9.1		7.9
Unvested (yrs)		8.5		9.0
Total outstanding (yrs)		9.2		8.7

As of March 31, 2013, a total of 148,833 of the options granted were exercisable and the fair value of such options was $0.6 million. Because the Company has very little history from which to estimate forfeiture of options or grants, it accounts for such forfeitures prospectively, that is, in the period in which they actually occur.

Inputs to both the Interest fair value calculation and the stock option Black-Scholes model are subjective and generally require significant judgment to determine. If, in the future, the Company determines that another method for calculating the fair value of its stock-based compensation is more reasonable, or if another method for calculating these input assumptions is prescribed by authoritative guidance, the fair value calculated for stock-based compensation could change significantly. Regarding stock options, higher volatility and longer expected terms generally result in an increase to stock-based compensation expense determined at the date of grant.

As of ~~September 30~~March 31, ~~2012~~2013, the aggregate intrinsic value of all stock options outstanding and expected to vest was $0.00 and the aggregate intrinsic value of currently exercisable stock options was $0.00. The intrinsic value of each option share is the difference between the estimated fair value of the Company’s stock and the exercise price of such option.

No stock options have been exercised as of ~~September 30~~March 31, ~~2012~~2013.

Stock Appreciation Rights

In November 2010, the Company issued one million SARs to Mr. Harris, its President and Chief Operating Officer, under the 2009 Plan. The vesting of these SARs was tied to continued employment with the Company and the accomplishment of certain milestones. Mr. Harris resigned from the Company during the first quarter of 2011, forfeiting all such SARs. The impact on all periods presented was not material.

In June 2011, the board of directors of the Company authorized the grant of one million SARs at a base grant price of $5.50 per share to its newly appointed Chief Executive Officer under the 2009 Plan. The SARs have a ten-year term and will vest in equal quarterly installments over a two-year period. In the event of a change of control (as defined in the 2009 Plan) or a qualified public offering (as defined in the executive’s employment agreement), the SARs will become 100% vested. The grant date fair value of the SARs aggregated to $3.8 million and was calculated using the Black-Scholes pricing model with the following assumptions determined as of the date of grant: estimated fair value of the common stock of $5.10, expected term of 5.75 years, risk free interest rate of 1.55%, an estimated volatility of 96.5%, and a dividend yield of 0%. The fair value will be charged to operations over the remaining vesting periods commencing on the grant date. For the three months ended September 30, 2012 and 2011, compensation expense related to these SARs of $0.5 million and $0.5 million, respectively, was charged to selling, general and administrative expense. For the nine months ended September 30, 2012 and 2011, and the period from September 22, 2006 (inception) to September 30, 2012, compensation expense related to these SARs of $1.4 million, $0.6 million, and $2.5 million, respectively, was charged to selling, general and administrative expense.

Note 9 Related Party Transactions

As described in Note 7, the Company’s principal stockholder has funded notes payable in support of the Company’s operations. These notes payable provide for the accrual of interest through their June 30, 2017 maturity date and $16.0 million and $10.4 million, of such accrued interest is included in accrued interest and expenses-related party as of September 30, 2012 and December 31, 2011, respectively. In addition, the Company’s principal stockholder has invoiced the Company for loan and corporate oversight expenses as well as out-of-pocket costs related to strategic and capital markets assistance. The total amount of such accrued expenses as of September 30, 2012 and December 31, 2011 was $1.1 million and $0.9 million, respectively, and is included in accrued interest and expenses-related party on the accompanying consolidated balance sheet. The Company’s principal stockholder has indicated that it will not require repayment of these accrued amounts until significant new funding is obtained from an unaffiliated source. There is no certainty as to whether such additional new funding will be obtained.

As described in Note 8, PetroTech exercised an option to acquire 2,029,337 ownership units in PA LLC.

~~Note~~Stock 10Appreciation ~~Subsequent Events~~Rights

~~Debt~~In ~~Financing~~November 2010, the Company issued one million SARs to its President and Chief Operating Officer, under the 2009 Plan. The vesting of these SARs was tied to continued employment with the Company and the accomplishment of certain milestones. He resigned from the Company during the first quarter of 2011, forfeiting all such SARs. The impact on all periods presented was not material.

OnIn ~~October~~June 152011, ~~2012~~the ~~and~~board ~~November~~of 1,directors ~~2012,~~of ~~PetroTech~~the ~~funded~~Company authorized the grant of one million SARs at a base grant price of $05.850 ~~million~~per share to its newly appointed Chief Executive Officer under the 2009 Plan. The SARs have a ten-year term and $0will vest in equal quarterly installments over a two-year period.5 ~~million,~~In ~~respectively~~the event of a change of control (as defined in the 2009 Plan) or a qualified public offering (as defined in the executive’s employment agreement), tothe PASARs ~~LLC~~will ~~pursuant~~become 100% vested. The grant date fair value of the SARs aggregated to $3.9 million and was calculated using the ~~terms~~Black-Scholes pricing model with the following assumptions determined as of ~~separate~~the ~~senior~~date ~~secured~~of ~~term~~grant: ~~notes~~estimated fair value of the common stock of $5.10, ~~The~~expected ~~notes~~term ~~provide~~of ~~for~~5.75 ~~interest~~years, atrisk anfree ~~annual~~interest rate of 121.55%, ~~which~~an isestimated ~~accrued~~volatility asof 96.5%, and a ~~payment-in-kind~~dividend ~~amount,~~yield ~~and~~of ~~are~~0%. ~~due~~The fair value will be charged to operations over the remaining vesting periods commencing on ~~June~~the ~~30,~~grant ~~2017~~date.

~~Class~~On January 29, 2013 the Company’s board of directors authorized the re-pricing of all outstanding SARS, changing the exercise price from $5.50 to $1.23 per option. In accordance with ASC 718-20-35-3, the Company computed the compensation cost as the fair value of the new awards in excess of the fair value of the original awards immediately before their terms were modified, using the Black-Scholes pricing model. This calculation used the following assumptions determined as of January 29, 2013: estimated fair value of the common stock of $1.00, remaining term of 4.75 years (depending on the date of the original grant), risk free interest rate of 0.90%, an estimated volatility of 96.5%, and a dividend yield of 0%. The modification affected 1,000,000 SARs and resulted in aggregate additional compensation cost of $0.2 million. Of the total compensation cost, $0.2 million was expensed immediately as it related to SARS which were vested as of January 29, 2013, and approximately $40,000 will be expensed through 2013. For the three months ended March D31, ~~Units~~2013 and 2012 and the period from September 22, 2006 (inception) to March 31, 2013, compensation expense related to these SARS of $0.7 million, $0.5 million, and $3.9 million respectively, was charged to selling, general and administrative expense.

OnNote 6 ~~November~~Related 8,Party ~~2012,~~Transactions the limited liability company agreement of PA LLC was amended and restated to provide for a new class of units (“Class D Units”) that are issuable to Parabel Inc. upon such terms and conditions as the board of directors of PA LLC may authorize.

~~ITEM~~As described in Note 4, the Company’s principal stockholder has funded notes payable in support of the Company’s operations. These notes payable provide for the accrual of interest through their June 30, 2017 maturity date and $19.9 million and $18.0 million, of such accrued interest is included in accrued expenses-related party as of March 31, 2013 and December 31, 2012, respectively. In addition, the Company’s principal stockholder has invoiced the Company for loan and corporate oversight expenses as well as out-of-pocket costs related to strategic and capital markets assistance. The total amount of such accrued expenses as of March 31, 2013 and December 31, 2012 was $1.1 million and $1.1 million, respectively, and is included in accrued interest and expenses-related party on the accompanying consolidated balance sheet. The interest expense for the three months ended March 31, 2013 and March 31, 2012 was $2.2 ~~MANAGEMENT~~million and $2.1 million, respectively. The Company’Ss ~~DISCUSSION~~principal ~~AND~~stockholder ~~ANALYSIS~~has OFindicated ~~FINANCIAL~~that ~~CONDITION~~it ~~AND~~will ~~RESULTS~~not OFrequire ~~OPERATIONS~~repayment of these accrued amounts until significant additional new funding is obtained from an unaffiliated source.

~~Forward-Looking~~Note 7 ~~Information~~Subsequent ~~and Factors That May Affect Future Results~~Events

None.

The SEC encourages companies to disclose forward-looking information so that investors can better understand a company’s future prospects and make informed investment decisions. This report and other written or oral statements that we make from time to time contain such forward-looking statements that set forth anticipated results based on management’s plans and assumptions. Such forward-looking statements involve substantial risks and uncertainties. We have tried, wherever possible, to identify such statements by using words such as “will,” “anticipate,” “estimate,” “expect,” “project,” “intend,” “plan,” “believe,” “target,” “forecast,” “goal,” “objective,” “aim” and other words and terms of similar meaning or by using future dates in connection with any discussion of future operating and financial performance, business plans and prospects, in-line products and product candidates, strategic review, capital allocation, and share-repurchase and dividend-rate plans. In particular, these include statements relating to future actions, business plans and customer prospects.

We cannot guarantee that any forward-looking statement will be realized, although we believe we have been prudent in our plans and assumptions. Achievement of anticipated results is subject to substantial risks, uncertainties and inaccurate assumptions. Should known or unknown risks or uncertainties materialize or should underlying assumptions prove inaccurate, actual results could vary materially from past results and those anticipated, estimated or projected. Investors should bear this in mind as they consider forward-looking statements. We undertake no obligation to publicly update forward-looking statements, whether as a result of new information, future events or otherwise. You are advised, however, to consult any further disclosures we make on related subjects in our Form 10-Q, 8-K and 10-K reports and our other filings with the SEC.

Our 2011 Annual Report on Form 10-K listed various important factors that could cause actual results to differ materially from past and projected future results. We note these factors for investors as permitted by the Private Securities Litigation Reform Act of 1995. Readers can find them in Part I, Item 1A, of that filing under the heading “Risk Factors.” We incorporate that section of that Form 10-K in this filing and investors should refer to it. You should understand that it is not possible to predict or identify all such factors. Consequently, you should not consider any such list to be a complete set of all potential risks or uncertainties.

Business

Parabel Inc. (the “Company”) provides renewable technology and solutions to address the global demand for new, economical sources of feed, food and fuel. The Company has developed proprietary technology, which it believes will enable customer licensees to grow, harvest and process locally-available aquatic plants (“micro-crops”) to create products for agriculture and energy markets in a profitable manner. To date, the Company has entered into four license agreements, each of which provide frameworks for commercial-scale build-out, with customer licensees in China, Malaysia, Chile and Ecuador.

~~The Company~~ITEM 2. MANAGEMENT’sS ~~strategy~~DISCUSSION isAND toANALYSIS ~~license~~OF ~~and~~FINANCIAL ~~provide~~CONDITION ~~management~~AND ~~support~~RESULTS ~~for~~OF production facilities at locations with suitable climates for its technology to achieve maximum productivity, which are generally located within equatorial or tropical regions. To allow customer licensees to build out rapidly and efficiently, the Company has developed a scalable and flexible solution, based on modular growth units which enable phased construction and production operations. The Company intends to generate revenue from licensing fees and royalties primarily from customer licensees that are engaged in the global agriculture and energy markets, as well as from investment groups.OPERATIONS

Using indigenous, non-genetically modified plants from the Lemnaceae family, the Company’s technology platform enables the production of Lemna Protein Concentrate (“LPC”), Lemna Meal (“LM”) and Biocrude. In the near-term, the Company is positioning LPC and LM in animal feed markets, as fish meal and alfalfa meal alternatives, respectively. Third-party testing commissioned by the Company has indicated the value and viability of the products in these applications. The Company believes that both products could also potentially be applied in fertilizer applications. With further technology and product development, the Company expects LPC to be applied in human food markets and, with the development of third-party conversion technologies, the Company expects Biocrude to be used as a feedstock for renewable fuels.Introduction

InOur ~~October 2011, the Company entered into a license agreement with Asesorias e Inversiones Quilicura S.~~MD&A. ~~(“AIQ”),~~is aprovided ~~customer licensee~~ in ~~South~~addition ~~America,~~to ~~with initial construction and operation of a pilot-scale bioreactor (of less than one hectare) completed. On March 31, 2012,~~ the ~~testing~~accompanying ~~period~~consolidated ~~during~~financial ~~which~~statements ~~the Company monitored~~ and ~~evaluated~~notes growth within the bioreactor was concluded and AIQ concurred with the Company’s report declaring the success of the preliminary phase. As a result of the successful preliminary phase, the Company's agreement with AIQ provides that the Company and AIQ will proceed to ~~Phase~~assist I,readers during which the first commercial-scale unit increment of 150 hectares, including growth, harvesting and processing modules, will be constructed on a turnkey basis (which means that the Company will design, have constructed and equip the facility, in ~~return~~understanding ~~for~~our ~~payments~~results ~~billed on a progress basis, not to exceed a prescribed limit). After completion~~ of ~~Phase I~~operations, ~~the~~financial ~~Company's~~condition ~~agreement with AIQ provides that the parties will proceed to Phase II, during which AIQ will continue to expand the facility in 150 hectare unit increments, including growth, harvesting~~ and ~~processing~~cash ~~modules, until the facility forms a unit of approximately 5,000 hectares~~flows. The ~~Company~~MD&A ~~and AIQ are currently in Phase I under the terms of the agreement but construction of the commercial-scale unit of 150 hectares has not yet begun and~~ is ~~subject~~organized toas ~~further ongoing discussions between the parties.~~follows:

In• ~~April~~Overview ~~2012,~~of ~~the~~Our ~~Company~~Business. ~~entered~~This ~~into a master framework agreement with China Energy Conservation and Environment Protection Group (“CECEP”)—Chongquing Industry Co.~~section, ~~Ltd.,~~beginning ~~an absolute holding subsidiary of CECEP. The agreement became effective~~ on ~~May~~page 1,23 ~~2012~~provides ~~upon~~information ~~approval~~about by the ~~boards~~following: ofour ~~directors~~business; ofour ~~both~~strategy; ~~parties. The agreement provides for the construction~~ and ~~operation~~our ofbusiness adevelopment micro-crop scientific research program in Hainan Province, China and a framework, subject to the achievement of certain milestones, for the subsequent build-out of ten commercial-scale license units of approximately 5,000 hectares each, in a phased approach at locations to be determined around the worldinitiatives.

In• ~~May~~Analysis ~~2012,~~of the ~~Company~~Results ~~entered~~of ~~into~~Our aOperations. ~~license~~This ~~agreement~~section ~~with~~begins ~~Lemna~~on ~~Asia~~page 23, ~~which provides for the construction~~ and ~~operation~~consists of athe ~~pilot~~following sub-~~scale~~sections ~~bioreactor~~that ~~(of~~analyze ~~less than one hectare) in~~ the ~~Perak~~results ~~region~~ of ~~Malaysia~~our ~~for~~operations ~~testing purposes, and a framework~~ for the ~~subsequent,~~three ~~incremental~~months ~~construction~~ended ~~and~~March ~~operation of a full commercial-scale unit (approximately 4~~31,~~800~~ ~~hectares),~~2013 ~~which~~compared ~~may~~to ~~consist~~the ofthree ~~modules~~months inended ~~different~~March ~~locations~~31, ~~in Malaysia.~~2012:

In◦ ~~August 2012, the Company entered into a license agreement with FertiGreen S~~Revenues.A. (aThis ~~subsidiary~~sub-section ~~of Probac S.A.), which~~ provides aan ~~framework~~analysis ~~for the incremental construction and operation~~ of aour ~~full commercial-scale unit (approximately 4,800 hectares) in Ecuador~~revenues. ~~The first phase will entail the construction and operation of a 300-hectare facility for commercial-scale production.~~

In◦ ~~September~~Total ~~2012,~~costs ~~the~~and ~~Company’s~~expenses. ~~board~~This ofsub-section ~~directors~~provides ~~approved~~ a ~~plan~~discussion toabout ~~wind-down~~our ~~and~~total ~~close~~costs ~~the Company’s Fellsmere, FL facility so that the Company could focus exclusively on commercialization~~ and ~~deployment efforts at customer sites in other parts of the world~~expenses.

~~Results~~◦ Selling, general and administrative expenses. This sub-section provides a discussion of ~~Operations~~changes in our selling, general and administrative expenses.

~~Three~~◦ Research and ~~Nine~~development ~~Months~~expenses. ~~Ended~~This ~~September~~sub-section ~~30,~~provides ~~2012~~a ~~Compared~~discussion toof ~~Three~~changes ~~and~~in ~~Nine~~our ~~Months~~research ~~Ended~~and ~~September~~development ~~30, 2011~~expenses.

~~Revenue.~~◦ ~~During~~Interest ~~the three and nine months ended September 30, 2012, the Company recognized $0~~expense.0 ~~million~~This ~~and~~sub-section ~~$0.7~~provides ~~million, respectively, of previously deferred licensing revenue, as~~ a ~~result~~discussion of ~~the~~changes ~~completion~~in ofour ~~the~~interest ~~construction~~expense ~~and~~on ~~testing~~notes ~~of pilot~~payable-~~scale~~-related ~~bioreactors~~party ~~for~~and ~~two~~on ~~customer~~notes ~~licensees in South America, as discussed in Note 6 in the accompanying consolidated financial statements. No revenue was recognized during the three~~payable- ~~or nine~~-~~month~~unrelated ~~periods ended September 30, 2011~~party.

◦

Depreciation expense. This sub-section provides a discussion of changes in our depreciation expense.

◦

Non-controlling interest. This sub-section provides a discussion of changes in non-controlling interest of PA LLC.

•

Analysis of Financial Condition, Liquidity and Capital Resources. This section begins on page 24, and consists of the following sub-sections:

◦

Overview. This sub-section provides an overview of how we have financed our operations.

◦

Cash and Cash Flow. This sub-section provides an analysis of selected measures of our liquidity and of our capital resources as of March 31, 2013, December 31, 2012 and the three months ended March 31, 2013 and 2012.

◦

Senior Secured Credit Financings. This sub-section provides an analysis of our borrowings from third parties under a senior secured structure.

◦

Contractual Obligations. This sub-section discloses, as of March 31, 2013, information about our contractual obligations and future periods in which payments are due.

◦

Dividends. This sub-section discloses the Company’s dividend policy.

•

Forward-Looking Information and Factors That May Affect Future Results. This section, beginning on page 28 provides a description of the risks and uncertainties that could cause actual results to differ materially from those discussed in forward-looking statements set forth in this MD&A relating to our financial and operating performance, business plans and prospects, strategy, and business-development plans. Such forward-looking statements are based on management’s current expectations about future events, which are inherently susceptible to uncertainty and changes in circumstances.

~~Total~~Overview ~~costs~~of ~~and~~Our expenses. Total costs and expenses increased by $0.5 million, or 7.8%, to $6.8 million in the three months ended September 30, 2012 as compared to the same period in 2011. For the nine months ended September 30, 2012 as compared to the nine months ended September 30, 2011, total costs and expenses increased by $1.1 million, or 4.8%, to $22.9 million. The increase in the comparative quarters was primarily attributable to the increase in interest expense. During the comparative nine-month periods, increases in selling, general and administrative expenses and interest expense, partially offset by a decrease in research and development expenses, as described in detail below, contributed to the overall increase in total costs and expenses.Business

~~Selling,~~Parabel ~~general~~Inc. ~~and~~provides ~~administrative~~micro-crop ~~expenses.~~technology ~~Selling,~~to ~~general~~address ~~and~~the ~~administrative~~global ~~expenses~~demand ~~include~~for ~~senior~~new ~~management~~sources of feed and ~~overhead~~food. ~~costs,~~The ~~business~~Company’s ~~development~~proprietary ~~expenditures,~~technology ~~system~~is ~~infrastructure~~designed ~~support~~to ~~costs,~~enable ~~finance~~customer ~~and~~licensees ~~accounting~~to ~~costs~~grow, harvest and ~~intellectual~~process ~~property~~locally-available ~~management~~aquatic ~~costs.~~plants ~~Selling,~~(“micro-crops”) ~~general~~to ~~and~~create ~~administrative~~feed ~~expenses~~and ~~remained~~food ~~relatively~~products ~~flat~~for atglobal $2markets.2 ~~million~~Currently, ~~for~~the Company has three license agreements, each of ~~the~~which ~~three~~provide frameworks for commercial-~~month~~scale ~~periods~~build-out, ~~ended~~with ~~September~~customer 30licensees in China, ~~2012~~Malaysia, and ~~2011~~Ecuador.

~~For~~The ~~the~~Company’s ~~nine~~strategy ~~months~~is ~~ended~~to ~~September~~license ~~30,~~and ~~2012~~provide asmanagement ~~compared~~support tofor ~~the~~production ~~nine~~facilities ~~months~~at ~~ended~~locations ~~September~~with ~~30,~~suitable ~~2011,~~climates ~~selling,~~for ~~general~~its ~~and~~technology ~~administrative~~to ~~expenses~~achieve ~~increased~~maximum ~~by $1.8 million~~productivity, orwhich ~~22.9%,~~are togenerally ~~$9.9~~located ~~million.~~within ~~Equity~~equatorial ~~compensation~~or ~~expenses~~tropical ~~increased by $2~~regions.8 ~~million~~To ~~due~~allow tocustomer ~~the~~licensees ~~options~~ to ~~acquire~~build PAout ~~LLC~~rapidly ~~interests~~and ~~issued~~efficiently, ~~during~~the ~~2012~~Company ashas ~~well~~developed asa ~~the~~scalable ~~stock appreciation rights~~ and ~~stock~~flexible ~~options issued during 2011~~solution, ~~net~~based ofon ~~forfeitures~~replicable ~~that~~micro-crop ~~arose~~growth ~~from~~increments, ~~employee~~enabling ~~terminations.~~phased ~~Travel~~construction ~~expenses including lodging~~ and ~~meals~~production ~~and entertainment increased by $0~~operations.4 ~~million~~The inCompany ~~2012~~intends ~~as compared~~ to ~~the~~generate ~~same~~revenue ~~period~~from incustomer ~~2011due~~licensees toengaged ~~an increase~~ in ~~business~~the ~~development~~global ~~efforts.~~feed ~~These~~and ~~increases~~food ~~were partially offset by a decrease of $1.4 million in payroll-related expenses~~markets, ~~primarily resulting from a 20.0% reduction in headcount due to selective personnel reductions~~ as well as ~~turnover~~from ininvestment ~~certain positions that management chose not to replace based upon the current business needs of the Company~~groups. ~~The decrease in payroll-related expenses also includes a $0.4 million gain recognized during the second quarter of 2012 associated with the settlement of a deferred compensation liability.~~

~~Research~~Using ~~and~~indigenous, ~~development~~non-genetically ~~expenses.~~modified ~~Research~~plants ~~and~~from ~~development costs include~~ the ~~research~~Lemnaceae ~~and~~family, ~~experimentation of~~ the ~~various~~Company’s ~~system~~technology ~~components~~platform ~~and~~enables the ~~design~~production ~~and construction~~ of ~~the~~Lemna ~~commercial-scale~~Protein ~~pilot~~Concentrate ~~system~~(“LPC”) ~~for~~and ~~customer~~Lemna ~~demonstration.~~Meal ~~These expenses increased by $0~~(“LM”).2 ~~million,~~In orthe ~~7.0%~~near-term, ~~to $2.3 million in~~ the ~~three~~company ~~months~~is ~~ended~~positioning ~~September~~LPC ~~30,~~and ~~2012~~LM ~~as compared to the same period~~ in ~~2011.~~animal ~~The~~feed ~~increase~~markets, ~~was~~as ~~primarily~~fish ~~attributable~~meal ~~to materials~~ and ~~supplies~~alfalfa ~~and~~meal ~~equipment~~alternatives, ~~rental increasing by $0~~respectively.3 ~~million~~Third-party intesting ~~2012~~commissioned asby ~~compared to~~ the ~~same~~Company ~~period~~has inindicated ~~2011~~the ~~due~~value toand ~~certain~~viability ~~experiments~~of ~~that were conducted during~~ the ~~third~~products ~~quarter~~in ofthese ~~2012~~applications. ~~This~~Based ~~increase~~on ~~was~~initial ~~partially~~third-party ~~offset~~testing, bythe aCompany ~~$0.1~~also ~~million~~believes ~~reduction~~that inLPC ~~impairment~~could ~~expense~~be asapplied ~~there~~in ~~were~~human nofood ~~impairments~~markets. ~~during~~The ~~the~~Company ~~third~~continues ~~quarter~~to ofperform ~~2012~~research and bydevelopment ~~$0.1~~related ~~million of equity compensation expense due~~ to ~~adjustments~~additional ~~for~~product ~~actual termination-related forfeitures~~applications.

~~During~~Analysis the nine months ended September 30, 2012 as compared to the same period in 2011, research and development expenses declined by $2.3 million, or 27.5%, to $6.1 million. Equity compensation expense decreased $1.1 million during the nine months ended September 30, 2012 as compared to the same period in 2011, which was primarily related to $0.8 million recognized during the first quarter of ~~2011 due to~~ the ~~accelerated~~Results ~~vesting~~ of ~~restricted~~Our ownership units previously issued to an employee of the Company. In addition, adjustments for actual termination-related forfeitures of employees whose roles were classified as research and development further decreased equity compensation expense during the nine months ended September 30, 2012 as compared to the same period in 2011. The headcount reduction of 14.6% accounted for a $1.3 million decrease in payroll-related expenses during the first nine months of 2012 as compared to 2011.Operations

~~Interest~~Three ~~expense~~Months –Ended ~~related party. Interest expense on notes payable – related party increased by $0.4 million or 24.3%~~March 31, to2013 ~~$2.2~~Compared ~~million in the three months ended September 30, 2012 as compared~~ to ~~the~~Three ~~same~~Months ~~period~~Ended ~~in 2011. For the nine months ended September 30~~March 31, 2012 as compared to the nine months ended September 30, 2011, interest expense – related party increased by $1.8 million, or 37.7%, to $6.4 million. The increases were due to additional funding of the Company’s operations through notes payable from related parties over the last year. The balance of the notes totaled $84.2 million at September 30, 2012 and $72.1 million at September 30, 2011.

~~Depreciation expense~~Revenues. ~~Depreciation~~No ~~expense~~revenue ~~decreased~~was byrecognized ~~$81,000,~~during ~~or 43.0%, to $108,000 in~~ the three months ended ~~September 30~~March 31, ~~2012 from $189,000 in the same period in 2011~~2013. ~~For~~During the ~~nine~~three months ended ~~September 30~~March 31, 2012, ~~as compared to~~ the ~~same~~Company ~~period~~recognized ~~in 2011, depreciation expense decreased by~~ $~~299,000,~~0.5 ormillion ~~44.7%,~~of topreviously ~~$370,000.~~deferred ~~The~~licensing ~~decrease~~revenue ~~during~~as ~~each~~a result of the ~~2012~~completion ~~periods~~of ~~as compared to~~ the ~~same~~construction ~~periods~~and insuccessful ~~2011~~testing ~~was~~of ~~due~~a topilot-scale ~~assets~~bioreactor ~~which~~for ~~were~~a ~~fully~~customer ~~depreciated~~licensee orin ~~impaired~~South ~~over the last year, offset partially by the depreciation of new capital assets~~America.

Total costs and expenses. Total costs and expenses increased by $0.1 million, or 1.8%, to $6.5 million in the three months ended March 31, 2013 as compared to the same period in 2012. The increase between comparable quarters was attributable to an increase in selling, general and administrative expenses and interest expense, partially offset by a decrease in research and development expenses.

Selling, general and administrative expenses. Selling, general and administrative expenses include senior management and overhead costs, business development expenditures, system infrastructure support costs, finance and accounting costs, and intellectual property management costs. The net increase in selling, general and administrative expenses was $0.7 million, or 28.8%, to $3.2 million in the three months ended March 31, 2013 as compared to the same period in 2012. The increase in selling, general and administrative expenses was largely attributable to (i) an increase in equity compensation by $0.9 million, or 212.4%, during the first three months of 2013 as compared to the same period in 2012, which was primarily related to the options granted in PA LLC and Parabel Ltd and due to the re-pricing of Parabel Inc.’s SARS and options and (ii) $0.4 million of expenses incurred in connection with the $15 million of unaffiliated funding received on January 29, 2013. This increase was offset by the reduction in headcount and other selling, general and administrative expenses as a result of the Company’s cost reduction initiatives.

Research and development expenses. Research and development expenses decreased by $0.9 million, or 54.6%, to $0.7 million in the three months ended March 31, 2013 as compared to the same period in 2012. The decrease was partially attributable to a $0.5 million decrease in compensation expenses in the first quarter of 2013 as compared to the same period in 2012 due to a 67.4% reduction in employee headcount within research and development as a result of consolidating the Company’s lab facilities and other functions. Equity compensation expense increased by approximately $40,000 during the first three months of 2013 as compared to the same period in 2012.

Interest expense – related party. Interest expense on notes payable – related party increased by $0.2 million, or 7.8%, to $2.2 million in the three months ended March 31, 2013 as compared to the same period in 2012. The increase was due to additional funding of the Company’s operations through notes payable from its principal stockholder over the last year. The balance of these notes totaled $86.9 million at March 31, 2013 and $80.7 million at March 31, 2012.

Interest expense – unrelated party. Interest expense on note payable– unrelated party increased by $0.2 million, or 100% to $0.2 million in the three months ended March 31, 2013 as compared to the same period in 2012. The increase was due to the funding of $15.0 million from Dhabi One Cayman Ltd. on January 29, 2013.

Depreciation expense. Depreciation expense decreased by approximately $63,000, or 45.3%, to approximately $76,000 in the three months ended March 31, 2013 from approximately $139,000 in the same period in 2012. The decrease during 2013 as compared to the same period in 2012 was due to assets which were fully depreciated or impaired over the last year, offset partially by the depreciation of new capital assets.

Non-controlling interest. As of March 31, 2013 and 2012, non-controlling interests collectively owned approximately 13.3% and 12.6% of PA LLC, respectively, and have been attributed their respective portion of the loss of PA LLC. The amount of loss assigned to non-controlling interests was $0.7 million and $0.7 million for the three months ended March 31, 2013 and 2012, respectively.

~~Non-controlling~~Analysis ~~interest. As~~ of ~~September~~Financial 30Condition, ~~2012~~Liquidity and ~~2011,~~Capital non-controlling interests collectively owned approximately 15.6% and 12.7% of PA LLC, respectively, and have been attributed their respective portion of the loss of PA LLC. The amount of loss attributed to non-controlling interests was $0.7 million and $0.8 million for the three months ended September 30, 2012 and 2011, respectively. For the nine months ended September 30, 2012 and 2011, non-controlling interests were assigned $2.5 million and $2.8 million of the net loss, respectively.Resources

Liquidity and Capital Resources

Overview

To date, the Company has financed its operations primarily through loans from, and debt securities issued to, its principal stockholder. To a lesser extent, the Company has also raised funds by issuing equity securities to unrelated third parties. Since its inception through ~~September 30~~March 31, ~~2012~~2013, the Company has raised in the aggregate $~~114~~131.15 million in debt and equity investments, with $~~104~~106.26 million of this total raised from its principal stockholder and $924.9 million raised from unrelated third parties. On January 29, 2013, Dhabi Cayman One Ltd, an unaffiliated investor based in the United Arab Emirates, invested $15 million in Parabel Ltd in the form of a senior secured convertible note (the “Dhabi note”)The funds from the Dhabi notewill be used to support the working capital needs and operations of Parabel Ltd. The Company does not anticipate receiving significant additional funds from its principal stockholder.

~~The~~Cash ~~Company had unrestricted cash~~ and ~~cash~~Cash equivalents of $1.2 million as of September 30, 2012. Net cash provided by financing activities (primarily advances from the Company’s principal stockholder) was $4.1 million during the nine months ended September 30, 2012 as compared to $19.5 million in the same period in 2011.Flow

~~The~~At ~~Company~~March 31, ~~does~~2013, ~~not currently expect to receive a significant amount of additional funding from its principal stockholder. If~~ the Company is(on ~~unable~~a toconsolidated ~~raise~~basis) ~~additional~~had ~~funding~~unrestricted orcash ~~generate~~and ~~sufficient~~ cash ~~flows~~equivalents ~~from~~of ~~operations~~$12.6 million, ~~the~~compared ~~Company will be unable~~ to ~~continue~~$0.4 inmillion ~~business~~at ~~beyond~~December 31, 2012.

~~Sources~~Net cash used in operating activities was $2.5 million and ~~Uses~~$3.9 million, during the three months ended March 31, 2013 and 2012, respectively. The decrease in cash usage from 2012 to 2013 was primarily attributed to cost savings resulting from the Company’s year-over-year headcount and associated compensation reductions described above in “Results of ~~Cash~~Operations”.

AtNet ~~September~~cash ~~30,~~used ~~2012,~~in ~~the~~investing ~~Company~~activities, ~~had~~which ~~unrestricted~~consisted ~~cash~~primarily ~~and~~of ~~cash~~the ~~equivalents~~purchase of capital assets, was $10.20 million, ~~compared~~and toapproximately $~~8.8~~40,000, ~~million~~for atthe ~~December~~three months ended March 31, ~~2011~~2013 and 2012, respectively.

Net cash ~~used~~provided inby ~~operating~~financing activities was $1114.7 million and $131.45 million, during the ~~nine~~three months ended ~~September 30~~March 31, ~~2012~~2013 and ~~2011~~2012, respectively., ~~The~~and ~~decrease~~consisted inof ~~cash~~advances ~~usage~~ from ~~2011 to 2012 was primarily attributed to cost savings resulting from~~ the Company’s ~~year-over-year~~principal ~~headcount~~stockholder and ~~associated~~financing ~~compensation~~from ~~reductions~~Dhabi ~~described~~Cayman ~~above~~One ~~in “Results of Operations”~~Ltd.

Net cash used in investing activities, which consisted primarily of the purchase of capital assets, was $0.2 million and $0.5 million, for the nine months ended September 30, 2012 and 2011, respectively. The decline in expenditures from period to period reflects the purchase of less equipment during 2012 than in 2011 because the Company’s ongoing improvements to its processing methods have recently been focused on rental of potential replacement equipment, some of which was purchased in the prior period.

Net cash provided by financing activities was $4.1 million and $19.5 million during the nine months ended September 30, 2012 and 2011, respectively, and primarily consisted of advances from the Company’s principal stockholder.

Senior Secured Credit Financings

Affiliates of the Company have provided borrowings under a senior secured structure, as described in more detail below:

	As of September 30, 2012
Note Payable to Valens U.S. SPV I, LLC	$	417,512
- Interest accrues monthly at an annual rate of 12%
- Note is due on June 30, 2017
Notes Payable to PetroTech		53,147,089
- Interest accrues monthly at an annual rate of 12%
- Note is due on June 30, 2017
Convertible Note Payable to PetroTech		10,000,000
- Interest accrues monthly at an annual rate of 12%
- Note is due on June 30, 2017 unless converted to common shares as described below
Up to $25,000,000 Note Payable to PetroTech		20,659,874
- Interest payable monthly and is drawn into note on a monthly basis at Prime + 2% (5.25% at September 30, 2012 and December 31, 2011)
- Note is due on June 30, 2017
- Permits additional draws to fund interest. Maximum balance of this note is limited to $25,000,000
Total Notes Payable - Related Party	$	84,224,475

OnSenior ~~June~~Secured ~~25,~~Credit 2012, PetroTech and Valens U.S. SPV I, LLC agreed to extend the maturity of the notes payable – related party from June 30, 2012 to June 30, 2017. The agreements provide that in the event the Company or PA LLC hold, individually or together, cash or cash equivalents in excess of $50,000,000 in the aggregate, then any such amounts held in excess of $50,000,000 shall be applied to pre-pay the outstanding notes to the extent of such excess.Financings

~~The~~Affiliates ~~notes~~and ~~payable~~an –unaffiliated ~~related~~source ~~party are secured by all~~ of the Company’s ~~assets.~~have ~~The~~provided ~~convertible~~borrowings ~~note~~under ~~payable~~a ~~allows~~senior ~~the~~secured ~~holder~~structure, ~~(at~~as ~~the~~described ~~holder’s~~in ~~option)~~more todetail convert all or any portion of the issued and outstanding principal amount and/or accrued interest and fees then due into shares of the Company’s common stock at a fixed conversion price of $5.43 per share.below:

Each note payable and the related master security agreement and equity pledge and corporate guaranty agreement contain provisions that specify events of default which could lead to acceleration of the maturity of the debt. These provisions prohibit the encumbrance or sale of the Company’s assets and require maintenance and insurance of the Company’s assets. The loan agreements do not contain any required financial ratios or similar debt covenants. Generally, an event of default would arise if the Company became insolvent, filed for bankruptcy, allowed a change in control or had unresolved judgments against its assets. As of September 30, 2012, none of these events had occurred.

	As of March 31, 2013
Note Payable to Valens U.S. SPV I, LLC	$	417,512
- Interest accrues monthly at an annual rate of 12%
- Note is due on June 30, 2017

Notes Payable to PetroTech		55,297,089
- Interest accrues monthly at an annual rate of 12%
- Notes are due on June 30, 2017

Convertible Note Payable to PetroTech		10,000,000
- Interest accrues monthly at an annual rate of 12%
- Note is due on June 30, 2017 unless converted to common shares as described below

Up to $25,000,000 Note Payable to PetroTech		21,211,240
- Interest payable monthly and is drawn into note on a monthly basis at Prime + 2% (5.25% at March 31, 2013 and December 31, 2012)
-Note is due on June 30, 2017
- Permits additional draws to fund interest. Maximum balance of this note is limited to $25,000,000
Total Notes Payable – Related Party		86,925,841

Senior Convertible Note Payable to Dhabi Cayman One Ltd.		15,000,000
- Interest accrues monthly at a fixed rate of 8% compounded quarterly		206,666
- Notes is due on January 29, 2018
Total Notes Payable – Unrelated Party		15,206,666

Total Notes Payable	$	102,132,507

~~During~~As of March 31, 2013, the ~~three~~principal ~~months~~balance ~~ended~~of ~~September~~notes ~~30,~~payable– ~~2012~~related ~~and~~party ~~2011,~~was ~~interest~~classified ~~charged~~as toa ~~operations~~noncurrent liability on ~~these~~the ~~notes~~accompanying ~~was~~consolidated ~~$2.2~~balance ~~million~~sheet ~~and~~based ~~$1.8~~on ~~million~~the maturity date of June 30, ~~respectively.~~2017 ~~During~~of the ~~nine~~full ~~months~~balance ~~ended~~plus ~~September~~accrued ~~30,~~noncurrent ~~2012~~interest ~~and~~of ~~2011~~$19,933,360. The notes payable – related party are secured by all of the assets of Parabel Inc. and PA LLC (but not the ~~period~~assets ~~from~~of ~~September~~Parabel ~~22,~~Ltd.) ~~2006~~The convertible note payable allows the holder (~~inception~~at the holder’s option) to ~~September~~convert ~~30,~~all ~~2012,~~or ~~interest~~any ~~charged~~portion toof ~~operations~~the onissued ~~these~~and ~~notes~~outstanding ~~was~~principal ~~$6.4~~amount ~~million,~~and/or ~~$4.6~~accrued ~~million,~~interest and fees then due into shares of the Company’s common stock at a fixed conversion price of $~~22.~~5.43 ~~million,~~per ~~respectively~~share.

~~The~~As of March 31, 2013, the principal ~~amount~~balance of ~~debt~~the ~~obligations~~note payable– unrelated party was classified as a noncurrent liability on the accompanying consolidated balance sheet based on the maturity date of ~~September~~January 3029, ~~2012~~2018 ~~was~~of the full balance plus accrued noncurrent interest of $84206,666.2 The ~~million,~~Senior Convertible Note is secured by a first priority perfected security interest in all of ~~which~~the ~~$20~~assets of the Company.7 ~~million~~The ~~was~~Senior ~~outstanding~~Convertible Note bears interest at a8% ~~floating~~per ~~rate~~annum, compounds each calendar quarter and is payable in arrears on the maturity date, or at such earlier date or dates when the Company has cash available to be distributed as determined in the sole discretion of 2%the ~~over~~board of directors of the ~~prime~~Company. The interest rate increases to 10% per annum upon the occurrence of, and ~~$63~~during the continuance of, certain events of default.5 ~~million~~The ~~was~~Senior ~~outstanding~~Convertible Note and any accrued and unpaid interest are convertible at athe ~~fixed~~Purchaser’s ~~rate~~option into the number of ~~12%.~~shares ~~Floating~~of ~~rate~~common ~~borrowings~~stock ~~will~~of ~~lead~~Parabel Ltd. (the “Common Stock”) equal to ~~additional~~the ~~interest~~dollar ~~expense~~amount being converted divided by $1.00 per share of Common Stock, subject to adjustment if certain events of dilution occur. In addition, the Senior Convertible Note and any accrued and unpaid interest ~~rates~~are ~~increase~~also convertible by the Company upon the approval of the holders of a majority of the Senior Convertible Notes then outstanding or the Company conducting a public offering in which the Company receives net proceeds of at least $50,000,000.

~~The~~Each ~~following~~note ~~table~~payable ~~discloses~~and ~~aggregate~~the ~~information~~related ~~about~~master security agreement and equity pledge and corporate guaranty agreement contain provisions that specify events of default which could lead to acceleration of the maturity of the debt. These provisions prohibit the encumbrance or sale of the Company’s ~~contractual~~assets ~~obligations~~and require maintenance and ~~period~~insurance of the Company’s assets. The loan agreements do not contain any required financial ratios or similar debt covenants. Generally, an event of default would arise if the Company became insolvent, filed for bankruptcy, allowed a change in ~~which~~control ~~payments~~or ~~are~~had ~~due~~unresolved asjudgments against its assets. As of ~~September~~March 3031, ~~2012:~~2013, none of these events had occurred.

	Payments due by Period
	Total		Less than 1 year		1-3 years		3-5 years		More than 5 years
Debt: principal	$	84,224,475	$	-	$	-	$	84,224,475	$	-
Debt: accrued interest to date (1)		15,993,451		-		-		15,993,451		-
Debt: estimated future interest (2)		46,644,191		-		-		46,644,191		-
Operating lease commitments		786,293		550,688		235,605		-		-
Total contractual obligations	$	147,648,410	$	550,688	$	235,605	$	146,862,117	$	-

Interest charged to operations on these notes, including amortization of original issue discount, was $2.4 million, $2.1 million, and $27.2 million during the three months ended March 31, 2013 and 2012, and the period from September 22, 2006 (inception) to March 31, 2013, respectively.

(1) Represents the amount of interest that has been accrued through the balance sheet date on approximately $63.5 million of outstanding debt at an annual rate of 12%. This amount is due at the June 30, 2017 maturity date of the related debt.

(2) Estimated future interest represents the amount of interest expected to accrue until the maturity date of the related debt, which in all cases is June 30, 2017. The estimated amount is calculated from the current balance sheet date through maturity based upon the principal balance of each note and the applicable interest rate, which is compounded monthly at prime + 2% (assumed to be 5.25%) on approximately $20.7 million of debt and calculated on a non-compounded basis at 12% on the remaining principal amount.

The principal amount of debt obligations as of March 31, 2013 was $102.1 million, of which $21.2 million was outstanding at a floating rate of 2% over the prime interest rate, $65.7 million was outstanding at a fixed rate of 12% and $15.2 million was outstanding at a fixed rate of 8%. Floating rate borrowings will lead to additional interest expense if interest rates increase.

Contractual Obligations

The following table discloses aggregate information about the Company’s contractual obligations and period in which payments are due as of March 31, 2013:

	Payments due by Period
	Total		Less than 1 year		1-3 years		3-5 years		More than 5 years

Debt: principal – related party	$	86,925,841	$	—	$	—	$	86,925,841	$	—
Debt: principal – unrelated party		15,000,000		—		—		15,000,000		—
Debt: accrued interest to date –related party (1)		19,933,360		—		—		19,933,360		—
Debt: accrued interest to date –unrelated party (2)		206,666		—		—		206,666		—
Debt: estimated future interest –related party (3)		41,374,973		—		—		41,374,973		—
Debt: estimated future interest –unrelated party (4)		9,085,472		—		—		9,085,472		—
Operating lease commitments		451,081		401,328		49,753		—		—
Total contractual obligations	$	172,977,393	$	401,328	$	49,753	$	172,526,313	$	—

(1)	Represents the amount of related party interest that has been accrued through the balance sheet date on approximately $65.7 million of outstanding debt at a fixed annual rate of 12% and $21.2 million of outstanding debt which is compounded monthly at prime + 2% (assumed to be 5.25%). These amounts are due at the June 30, 2017 maturity date of the related debt.
(2)	Represents the amount of related party interest that has been accrued through the balance sheet date on approximately $15.0 million of outstanding debt at a fixed annual rate of 8% compounded quarterly. This amount is due at the January 29, 2018 maturity date of the related debt.

(3)

Estimated future related party interest represents the amount of interest expected to accrue until the maturity date of the related debt, which in all cases is June 30, 2017. The estimated amount is calculated from the current balance sheet date as of March 31, 2013 through maturity of June 30, 2017 012 2 12 a senior secured convertible note.nvestor based in the United Arab Emirates, invested $15 Million in is based upon the principal balance of each note and the applicable interest rate, which is compounded monthly at prime + 2% (assumed to be 5.25%) on approximately $21.2 million of floating rate debt and calculated on a non-compounded basis at 12% on the remaining $65.7 million of fixed rate debt.

(4)

Estimated future unrelated party interest represents the amount of interest expected to accrue until the maturity date of the related debt, which in all cases is January 29, 2018. The estimated amount is calculated from the current balance sheet date through maturity based upon the principal balance of each note and the applicable interest rate, which at a fixed annual rate of 8% compounded quarterly.

The Company is currently in the development stage and anticipates accomplishing a transition from the development stage to operational status, depending upon the timing and extent of success achieved in accomplishing milestones, including:

•

preparation of technology and related processes for commercial deployment;

• securing profitable license agreements with global customer licensees, which in turn depends upon the demand for ~~feed~~new ~~and~~micro-crop ~~renewable energy~~ technologies and, consequently, the demand for and price of the ultimate products produced by the Company’s technology;

•

the timing and cost of delivery of technology as required by license agreements with prospective customer licensees, which is expected to include the completion of design work specific to such customer licensees and oversight of the construction and successful operation of pilot plants at customer licensee locations; and

• the ability and willingness of future customers to abide by the terms of the technology agreements and to ~~pay~~make ~~license~~payments ~~and royalties fees~~ at agreed-upon rates.

While the Company has a limited but growing list of prospective customer licensees, the Company’s costs are mostly variable and the Company does not have significant commitments other than its debt and lease obligations. The Company has never been profitable and has incurred significant losses and cash flow deficits. For the nine months ended September 30, 2012 and 2011, and the period from September 22, 2006 (inception) to September 30, 2012, the Company reported net losses of $22.3 million, $21.9 million, and $162.0 million, respectively, and negative cash flows from operating activities of $11.7 million, $13.4 million, and $96.8 million, respectively. As of September 30, 2012, the Company had an aggregate accumulated deficit of $142.7 million. The Company anticipates that it will continue to report losses and negative cash flows during the fourth quarter of 2012. As a result of these net losses, cash flow deficits, and other factors, there is a substantial doubt about the Company’s ability to continue as a going concern.26

~~The~~While the Company ishas ~~exploring~~a ~~alternative~~limited ~~private~~but ~~sources~~growing list of ~~financing~~prospective customer licensees, ~~but~~the itCompany’s iscosts ~~uncertain~~are ~~whether~~mostly variable and the Company ~~will~~does benot ~~able~~have tosignificant ~~secure~~commitments ~~alternative~~other ~~private~~than ~~sources~~its ofdebt ~~financing~~and lease obligations. ~~Therefore,~~ ~~the~~The Company ~~continues~~anticipates tothat ~~carefully~~its ~~manage~~net ~~its~~loss ~~cash~~from ~~resources~~operations and ~~reduce~~net ~~overhead~~cash ~~wherever~~used ~~possible. In~~in ~~September~~operations ~~2012,~~over the ~~Company’s~~next ~~board~~12 ofmonths ~~directors~~will ~~approved~~continue to decline as a ~~plan~~result toof ~~wind-down~~cost reduction measures. The Company has never been profitable and ~~close~~has incurred significant losses and cash flow deficits since its inception. For the ~~Company’s~~three ~~Fellsmere~~months ended March 31, FL2013 ~~facility~~and so2012, ~~that~~and the period from September 22, 2006 (inception) to March 31, 2013, the Company ~~could~~reported ~~focus~~net ~~exclusively~~losses onof ~~commercialization~~$6.5 million, $5.9 million, and ~~deployment~~$175.0 ~~efforts~~million, atrespectively, ~~customer~~and ~~sites~~negative incash ~~other~~flows ~~parts~~from ofoperating ~~the~~activities ~~world~~of $2. It5 ismillion, ~~anticipated~~$3.9 ~~that~~million, ~~the~~and ~~Fellsmere~~$102.2 million, FLrespectively. ~~facility~~As ~~will~~of ~~have~~March 31, no2013, ~~active~~the ~~operations~~Company byhas ~~the~~an ~~end~~aggregate accumulated deficit of ~~November,~~$154.1 ~~2012~~million. The Company anticipates ~~realizing~~that ~~significant~~it ~~reductions~~will continue to ~~its~~report ~~research~~losses and ~~development~~negative ~~expenses~~cash asflows during 2013. As a result of ~~this~~these ~~closure~~net losses, cash flow deficits, and other factors, there is a substantial doubt about the Company’s ability to continue as a going concern.

The Company’s accompanying consolidated financial statements are presented on a going concern basis, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business and do not include any adjustments that might result from the outcome of this uncertainty. As of ~~September 30~~March 31, ~~2012~~2013, these adjustments would likely include the substantial impairment of the carrying amount of the Company’s non-cash assets of $10.75 million and potential contingent liabilities that may arise if the Company is unable to fulfill various operational commitments. In addition, the value of the Company’s securities, including common stock and warrants, would likely be significantly impaired. The Company’s ability to continue as a going concern is dependent upon it generating sufficient cash flow from operations and obtaining additional capital and financing.

On January 29, 2013 the Company secured an investment of $15.0 million in the form of a senior secured convertible note issued by Parabel Ltd. The funds from this note will be used to support the working capital needs and operations of Parabel Ltd.

Off-Balance Sheet Arrangements

As of ~~September 30~~March 31, 2013 and 2012, the Company did not have any significant off-balance sheet arrangements, as defined in Item 303(a)(4)(ii) of SEC Regulation S-K.

Dividends

The Company has no plans to declare any dividends or other distributions to shareholders. To the extent the Board of the Company were to declare a dividend or other distribution to shareholders, it would only occur, firstly, to the extent that the Company had working capital available for such dividend or other distribution that was in excess of the sum of $25 million and the principal amount (and unpaid accrued interest) of the Dhabi note then outstanding (“available working capital”) and, secondly, after any accrued interest on the Dhabi note and accrued interest and outstanding principal on the Company’s notes payable – related party are paid out of available working capital.

Forward-Looking Information and Factors That May Affect Future Results

The SEC encourages companies to disclose forward-looking information so that investors can better understand a company’s future prospects and make informed investment decisions. This report and other written or oral statements that we make from time to time contain such forward-looking statements that set forth anticipated results based on management’s plans and assumptions. Such forward-looking statements involve substantial risks and uncertainties. We have tried, wherever possible, to identify such statements by using words such as “will,” “anticipate,” “estimate,” “expect,” “project,” “intend,” “plan,” “believe,” “target,” “forecast,” “goal,” “objective,” “aim” and other words and terms of similar meaning or by using future dates in connection with any discussion of future operating and financial performance, business plans and prospects, strategy, and business-development plans. In particular, these include statements relating to future actions, business plans and prospects, prospective products or product approvals, future performance or results of current and anticipated products, sales efforts, expenses, interest rates, foreign exchange rates, the outcome of contingencies (such as legal proceedings), government regulation and financial results. Among the factors that could cause actual results to differ materially from future plans and projected future results are the following:

•

the success of external business-development activities;

•

the ability to successfully market our micro-crop technology both domestically and internationally;

•

difficulties or delays in constructing production facilities at locations with suitable climates for our technology;

•

the exposure of our operations outside the U.S. to possible capital and exchange controls, expropriation and other restrictive government actions, changes in intellectual property legal protections and remedies, as well as political unrest and unstable governments and legal systems;

•

our ability to protect our patents and other intellectual property both domestically and internationally;

•

interest rate and foreign currency exchange rate fluctuations;

•

governmental laws and regulations affecting domestic and foreign operations, including, without limitation, tax obligations and changes affecting the tax treatment by the U.S. of income earned outside of the U.S.;

•

any significant issues that may arise related to the outsourcing of certain operational and staff functions to third parties, including with regard to quality, timeliness and compliance with applicable legal requirements and industry standards; and

•

growth in costs and expenses.

We undertake no obligation to publicly update forward-looking statements, whether as a result of new information, future events or otherwise. You are advised, however, to consult any further disclosures we make on related subjects in our Form 10-Q, 8-K and 10-K reports and our other filings with the SEC.

Our 2012 Annual Report on Form 10-K listed various important factors that could cause actual results to differ materially from past and projected future results. We note these factors for investors as permitted by the Private Securities Litigation Reform Act of 1995. Readers can find them in Part I, Item 1A, of that filing under the heading “Risk Factors.” We incorporate that section of that Form 10-K in this filing and investors should refer to it. Reference is also made to Part II, Item 1A, “Risk Factors,” of this Form 10-Q. You should understand that it is not possible to predict or identify all such factors. Consequently, you should not consider any such list to be a complete set of all potential risks or uncertainties.

Legal Proceedings and Contingencies

Information with respect to legal proceedings and contingencies required by this Item is incorporated herein by reference to Legal Proceedings in Part II, Item 1, of this Form 10-Q.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

AsNot ~~a smaller reporting company, the Company is not required to provide the information otherwise required by this Item~~Required.

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ITEM 4. CONTROLS AND PROCEDURES

Disclosure Controls and Procedures

Under the supervision and with the participation of the Company’s management, including the Company’s principal executive officer and principal financial officer, the Company conducted an evaluation of its disclosure controls and procedures, as such term is defined under Rule 13a-15(e) and Rule 15d-15(e) promulgated under the Securities Exchange Act of 1934, as amended (the “Exchange Act”). Based on this evaluation, the Company’s management, including the Company’s principal executive officer and principal financial officer, concluded that the Company’s disclosure controls and procedures are effective in alerting them in a timely manner to material information required to be disclosed in its periodic reports filed with the SEC.

Changes in Internal Control over Financial Reporting

During the most recent fiscal quarter, there have been no changes in the Company’s internal control over financial reporting (as such term is defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) that have materially affected or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

PART II – OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

~~Not~~On ~~applicable~~February 1, 2013, Asesorias e Inversiones Quilicura S.A. (“AIQ”), of Chile, initiated an arbitration before the International Chamber of Commerce (“ICC”) against PA LLC, a subsidiary of the Company, alleging that PA LLC is in breach of an Amended and Restated License Agreement with AIQ entered into as of October 25, 2011 (the “Agreement”). AIQ seeks: (i) damages of $974,238, (ii) a declaration that the Agreement is void, and (iii) a declaration that AIQ owes PA LLC no further obligations under the Agreement. On March 15, 2013, PA LLC sent AIQ a notice of default under the Agreement on account of unpaid license fees in the amount of $500,000 plus accrued interest. AIQ had ten days from receipt of the notice to cure the default. AIQ did not cure the default. On April 8, 2013, PA LLC submitted its Answer and Counterclaim in the ICC arbitration that denied all of AIQ’s substantive allegations and claims for relief and asserted a claim against AIQ for the $500,000 plus accrued interest that AIQ owes PA LLC under the Agreement. AIQ submitted its reply to PA LLC’s counter-claim on May 13, 2013, denying PA LLC’s claims. No further proceedings have been had in the arbitration. PA LLC believes that it has meritorious defenses and will defend vigorously against AIQ’s claims. Nevertheless, there can be no assurance that PA will prevail in the arbitration. Arbitration proceedings are inherently unpredictable, and excessive awards do occur.

Item 1A. RISK FACTORS

AsInformation aconcerning ~~smaller~~certain ~~reporting~~risks ~~company~~and uncertainties appears in Part I, Item IA “Risk Factors” of the Company’s isAnnual ~~not~~Report ~~required~~on toForm ~~provide~~10-K for the ~~information~~year ~~otherwise~~ended ~~required~~December 31, by2012 ~~this~~(the ~~Item~~“10-K”).

Since the filing of the 10-K, there have been no material changes to the Company’s risk factors.

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

Not applicable.

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

Not applicable.

ITEM 4. MINE ~~(REMOVED~~SAFETY ~~AND RESERVED).~~DISCLOSURES

ITEM 5. OTHER INFORMATION

Not applicable.

ITEM 5. OTHER INFORMATION

On January 29, 2013, in connection with the investment by Dhabi Cayman One Ltd. in Parabel Ltd., we amended and restated our employment agreements with our Chief Executive Officer, our Chief Financial Officer and our Chief Operating Officer in order to update and revise the agreements in several respects, including to add Parabel Ltd. as a party to each of those agreements and to provide that the respective executives of Parabel Inc. and PA LLC will also hold the same executive position at Parabel Ltd.

The preceding description of the revisions to the employment agreements does not purport to be complete and is qualified in its entirety by reference to the employment agreements, copies of which are filed as Exhibits 10.1, 10.2 and 10.3 to this Form 10-Q and are incorporated herein by reference.

ITEM 6. EXHIBITS

10.1*	Amended and Restated Employment Agreement, as of January 29, 2013, by and among Parabel Inc., PA LLC, Parabel Ltd. and Anthony John Phipps Tiarks.
10.2*	Amended and Restated Employment Agreement, as of January 29, 2013, by and among Parabel Inc., PA LLC, Parabel Ltd. and Syed Naqvi.
10.3*	Amended and Restated Employment Agreement, as of January 29, 2013, by and among Parabel Inc., PA LLC, Parabel Ltd. and Peter Sherlock.
31.1*	Certification by the Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
31.2*	Certification by the Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
32.1*	Certification by the Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
32.2*	Certification by the Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
101**	The following materials from Parabel Inc.’s Quarterly Report on Form 10-Q for the quarter ended ~~September~~March 3031, ~~2012~~2013, are formatted in XBRL (eXtensible Business Reporting Language); (i) Consolidated Balance Sheets as of ~~September~~March 3031, ~~2012~~2013 and December 31, ~~2011~~2012; (ii) Consolidated Statements of Operations for the three months ended ~~September~~March 3031, ~~2012~~2013, and ~~September~~March 3031, ~~2011~~2012, ~~the~~and ~~nine~~for ~~months~~the ~~ended~~period ~~September~~from ~~30,~~inception ~~2012 and~~ (September 3022, ~~2011~~2006) ~~and~~through ~~the~~March ~~72 months ended September 30~~31, ~~2012~~2013; (iv) Consolidated Statement of Changes in Stockholders’ Deficit asfor ofthe ~~September~~period ~~30,~~from ~~2012,~~inception ~~and~~(September ~~the~~22, ~~years~~2006) ~~ended~~to ~~December~~March 31, ~~2011, 2010, 2009, 2008, 2007 and 2006~~2013; (v) Consolidated Statements of Cash Flows for the ~~nine~~three months ended ~~September~~March 3031, ~~2012~~2013 and ~~September~~March 3031, ~~2011~~2012, and for the 72period ~~months~~from ~~ended~~inception (September 3022, ~~2012~~2006) through March 31, 2013; and (vi) Notes to ~~the~~ Consolidated Financial Statements March 31, 2013 (Unaudited).

These exhibits are available upon request. Requests should be directed to the Investor Relations Department at Parabel Inc., 1901 S. Harbor City Blvd., Suite 600, Melbourne, FL 32901, telephone: 321-409-7500 ~~begin_of_the_skype_highlightingend_of_the_skype_highlighting~~, email: investorrelations@parabel.com. The exhibit numbers followed by an asterisk (*) indicate exhibits physically filed with this Form 10-Q. The exhibit numbers followed by two asterisks (**) indicate exhibits included pursuant to Rule 406T of Regulation S-T and are deemed not filed for purposes of Sections 11 or 12 of the Securities Act of 1933, as amended, are deemed not filed for purposes of Section 18 of the Securities and Exchange Act of 1934, as amended, and otherwise are not subject to liability under those sections.

2730

SIGNATURE

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

	PARABEL INC.
Date: November 14, 2012	By:	/s/ SYED NAQVI
Date: May 15, 2013	By:	/s/ SYED NAQVI
	Name:	Syed Naqvi
	Title:	Chief Financial Officer

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